Standing Committee B

[Mr. James Cran in the Chair]

Pensions Bill

Clause 196 - Requirement for member-nominated trustees

Kevin Brennan: I beg to move amendment No. 299, in
clause 196, page 122, line 30, leave out 'one-third' and insert 'one-half'.

James Cran: With this we may discuss the following amendments: No. 301, in
clause 196, page 123, line 2, leave out 'one-third' and insert 'one-half'.
 No. 303, in 
clause 197, page 123, line 37, leave out 'one-third' and insert 'one-half'.
 No. 305, in 
clause 197, page 124, line 6, leave out 'one-third' and insert 'one-half'.

Kevin Brennan: The amendments deal with involving members in their pension fund. The subject has generated much interest in recent years since it has become more accepted by trade unions, in particular, and workers that they should regard pension schemes as a form of deferred wages. In many cases, rather than paying money directly to workers, employers are making contributions to a worker's pension fund. Rather than pay wages, therefore, employers are making a promise that at some point in the future the worker will receive a pension. Later we will discuss the problems with that pension promise, which the Bill is meant to rectify.
 The Bill presents an opportunity to strengthen the association between workers and their pension funds. The amendments would do that by probing the Government on the clauses about member-nominated trustees. It is well established in most pension schemes that member-nominated trustees are on the boards of trustees of pension schemes, but perhaps it is time to consider increasing the proportion of member-nominated trustees up to best-practice levels. Why have the Government picked the proportion of one-third as the number of trustees to be nominated by members? 
 The amendments would increase that proportion from one third to one half, which seems sensible. At the very least, employees have half an interest in what is happening to a pension fund, and it could be argued that they have more. Employers have legitimate interests, too. From the point of view of what is happening to the workers' pension scheme, it is important that at least half of the trustees are member-nominated. That would help to boost members' confidence in schemes, which is attempted 
 elsewhere in the Bill with the provision of both a pensions regulator and a pension protection fund. 
 Recent events at Allied Steel and Wire and in many other companies have shown that employers retain more than adequate powers to safeguard their interests. Generally, for example, benefits cannot be increased without the consent of the employer, but employers can force reductions in benefits and contributions through their power to discontinue schemes. The Bill also requires that employers agree on the funding strategy as adopted by the trustees, so there is no argument that having 50 per cent. of trustees nominated by members would infringe employers' interests, which are protected in any case. 
 This morning we debated people's past statements and their pasts coming back to haunt them. In opposition, the Labour party supported one half of trustees being member nominated, so I look forward to hearing why the Under-Secretary has fixed on the proportion of one third and whether he will consider increasing it.

Nigel Waterson: I do not want to speak against the amendments. As the hon. Member for Cardiff, West (Kevin Brennan) knows, we will debate amendments tabled by the Conservatives which also hope to strengthen and bolster the position of member-nominated trustees, albeit in a different way.
 I want to probe the hon. Gentleman's thinking. We all received the same briefing, I think, and it is basically the TUC's position. There is nothing wrong with that, but it is right to put its provenance on record. While I understand the logic of the arguments made by the TUC and the hon. Gentleman, has he considered whether enough people will come forward? We will discuss some of the more onerous requirements that will be placed on trustees, especially those in the smaller companies. Is he, or is the TUC, convinced that there will be sufficient candidates?

Kevin Brennan: Some of the amendments on members' training requirements and so on are designed to make it easier for people to come forward. The greater interest in the issue means that people will be much more likely to do that than they have been.

Nigel Waterson: The hon. Gentleman might be right, and I hope that he is. We have a lot to say on the issue of training and the yardsticks. The Bill puts some broad and potentially onerous responsibilities on trustees in the future and it will need a special kind of person to fulfil that role, whether they are a member or from some other source. I hope that that is something that the TUC and others might wish to get involved in because a recognised set of qualifications or training must be developed. That would be fine if the TUC have an input. My only reservation is whether enough members would be prepared to take on that task. Let us hope that that is the case. Although I have that slight reservation, I have no problem with the amendment.

Chris Pond: Before I discuss
 the amendments, I shall say a few words about the purposes of clauses 196 and 197 to which they relate. Clause 196 does two things: it ensures that every occupational pension scheme has member-nominated trustees and brings much needed simplification to that area of legislation. Clause 197 has the same effect in relation to member-nominated directors, where the trustee is a company. Trustees will be required to make and implement arrangements for appointing at least one third member-nominated trustees and to do so within a reasonable time.
 The Government believe that member-nominated trustees add value to any pension scheme by bringing different skills and experiences to the role. They help to give members confidence in their scheme and a sense of ownership. Many more schemes have member-nominated trustees than was the case before the Pensions Act 1995. However, there are still too many that do not. That is why we are withdrawing the employer's right to opt out of having member-nominated trustees. 
 We are told that current legislation is too complex and too difficult to operate. That view is reinforced by the recommendations of the Pickering report. The clauses represent simplification because they focus on the outcome—member-nominated trustees in all schemes—rather than the process by which trustees must be nominated and selected. The effect of the amendments would be to increase the minimum proportion of member-nominated trustees from one third to one half. 
 At the outset, I must say that we have no difficulty with the practice or the principle of one half of the trustees being member-nominated. Pension schemes can exceed the one-third minimum and we are happy for them to do so. However, we need to think carefully about the potential burden on schemes that could arise from making that a legislative requirement for every scheme. For many schemes, member-nominated trustees are still a relatively new concept. A requirement was introduced in the Pensions Act 1995 and schemes have gone to a great deal of trouble and expense to put arrangements for one third member-nominated trustees in place. We must think carefully before making any change, despite the powerful arguments of my hon. Friend the Member for Cardiff, West. However desirable a 50 per cent. requirement might seem, we need to bear it in mind that even small legislative changes, such as this one, often create widespread disruption as thousands of schemes are obliged to change accordingly. 
 Some schemes already have 50 per cent. member-nominated trustees, which is to be welcomed. However, what is important is not the exact proportion, but getting some members on every board. Having ordinary members on the board is not about having individuals to represent the interests of scheme members, nor is it about creating a voting block to balance the power of employers; it is about bringing a different set of skills and experiences to bear and providing board discussions with a different perspective. It therefore follows that 50 per cent. 
 should not be seen as a critical or pivotal figure that ensures that member-nominated trustees get their way somehow or outvote their fellow trustees on the board. It could be argued that it is wrong to set scheme governance against a conflict background of that sort. 
 All trustees have the same responsibilities. That is the important point. They have the responsibility to run the scheme in the interests of the beneficiaries. The overwhelming majority of trustee boards work together in that way for the interests of members as a whole. Indeed, I am told that trustee decisions are rarely made by anything other than complete consensus. 
 It is important to work with the pensions industry and sponsoring employers to continue to encourage good quality occupational pension schemes. I think that my hon. Friend will acknowledge that the changes we propose represent a genuine step forward, although there is some discussion among us about whether a third or a half is the appropriate proportion. They will lead to more ordinary scheme members sitting on trustee boards, while at the same time giving schemes more flexibility to devise nomination and selection arrangements that are best suited to their own circumstances. 
 We are removing the employer's right to opt out. That is an important step forward. We are also ensuring that we get member trustees on all trustee boards and that we simplify the prescriptive legislative requirements that schemes are currently forced to follow. Our priority is not to prescribe the proportion of member trustees or who they should be, but my hon. Friend made some important points and we are prepared to consider the matter further.

Kevin Brennan: I thank the Under-Secretary for that positive response. That he has agreed to cogitate a little further represents a step forward. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Nigel Waterson: I beg to move amendment No. 295, in
clause 196, page 122, line 31, after second 'trustees', insert 
 'and that not less than one third of this number shall be nominated by a recognised pensioners' association and in the case of a closed fund, the majority shall be member nominated trustees'.

James Cran: With this we may discuss the following amendments: No. 267, in
clause 196, page 122, leave out lines 33 to 37 and insert— 
 '( ) ''Member-nominated trustees'' are trustees of a pension scheme who— 
 (a) are nominated as a result of a process in which at least all active and pensioner members of the scheme are eligible to participate, and 
 (b) are selected by a process including at least all active and pensioner members.'.
 No. 296, in 
clause 196, page 122, line 37, at end insert— 
 '(2A) a ''recognised pensioners' association'' shall be an organisation that represents at least 25 per cent. of pensioners from a particular occupational pension scheme and is duly constituted for the purpose of representing its members.'.
 No. 269, in 
clause 197, page 123, leave out lines 41 to 45 and insert— 
 '(2) ''Member-nominated directors'' are directors of a pension scheme who— 
 (a) are nominated as a result of a process in which at least all active and pensioners members of the scheme are eligible to participate and 
 (b) are selected by a process including at least all active and pensioner members.'.

Nigel Waterson: This is another group of amendments that is intended to strengthen the position of member-representing trustees. I am grateful for the help and advice I have received from various quarters. I thank the Industrial Training Boards Pensioners Association in the shape of Mr. Peter Austin and his colleagues, and the Occupational Pensioners Alliance, in particular Mr. Roger Turner. There are strong feelings about how the Bill deals with the issue.
 Amendment No. 295 would add the requirement that at least a third of the member-nominated trustees should 
''be nominated by a recognised pensioners' association and in the case of a closed fund, the majority shall be member nominated trustees''.
 I believe that one of the industrial training board funds is a closed fund. 
 Amendment No. 267 is replicated in amendment No. 269 in respect of clause 197, which deals with member-nominated directors rather than member-nominated trustees. Other than that, it is almost identical. Amendment No. 267 sets out that member-nominated trustees 
''are trustees of a pension scheme who are nominated as a result of a process in which at least all active and pensioner members of the scheme are eligible to participate, and are selected by a process including at least all active and pensioner members.''
 Amendment No. 296 tries to define a recognised pensioners association. As I said of other amendments, it is not a bid for a drafting prize. If the principle is acceptable to the Under-Secretary, he can ask his excellent draftsmen or draftswomen to work to produce something better. Basically, it attempts to define matters by stating: 
''a 'recognised pensioners' association' shall be an organisation that represents at least 25 per cent. of pensioners from a particular occupational pension scheme and is duly constituted for the purpose of representing its members.''
 In the light of some recent problems, there is much to be said for recognising and underpinning the importance of pensioners associations. Some schemes are active, vocal and knowledgeable about the issues to be faced while others are less so. There must be a threshold, otherwise self-appointed spokesmen would purport to speak on behalf of pensioner members. I chose a 25 per cent. threshold, but other percentages may occur to Committee members. 
 As the Occupational Pensioners Alliance said in its original briefing: 
''We are particularly unhappy about the proposals . . . on Member Trustees''
 because 
''the role of pensioners in the running of their schemes would be even more marginalised that it is now.''
 It welcomes the requirement to have a minimum of one third member trustees, but goes on to say: 
''the practical upshot of Sections 196 (2) 197 (2) will mean that pensioners can be ignored in the nomination and election processes. There is only a duty for 'active members' to be consulted. The OPA believes strongly that representation via the Trustees is essential for good and fair scheme management and we call, in the strongest possible terms, for the Government to re-examine its position on this issue.''
 The alliance has a strong argument. I do not fully understand the logic of why pensioner members should not be given the position that our amendment suggests. I hope that the Under-Secretary will see the sense of the proposal. If he has views on the threshold, I shall be happy not to press amendment No. 296 to a Division and await the Government to come up with an alternative on Report. It is an important point. It clearly matters to some well organised and concerned pensioners organisations.

Steve Webb: I apologise for having missed the first few sentences of the introductory remarks. The Committee will note that amendment No. 267 is probably the first amendment in our proceedings that has been tabled in the names of Conservative Members as well as Liberal Democrat Members. We have read the same briefings, met the same people and reached the same conclusions.
 Given the maturity of certain occupational pension schemes, there is a growing worry about the position of people who no longer work for the company or perhaps no longer work for anyone and who are now retired. The worry is that their interests will not be fully represented in the decisions made by the trustees. 
 I accept what the Under-Secretary said in response to the previous group of amendments that we must not regard trustees as a set of caucuses representing different factions. That is not their nature. However, it was rightly explained that one third of them will be nominated. Members of the scheme bring particular expertise and perspectives that others cannot do so vicariously. 
 Retired members will make up a large proportion of the membership of some schemes. We support the amendment because we were slightly startled by subsection (2)(a), which refers to 
''at least all the active members''.
 I accept that ''at least'' does not preclude the involvement of retired members, but they seem to be an afterthought and a marginalised group. Given the ageing of the population and of some of the membership, it seems odd that retired members do not have at least the same status as active members. 
 I recognise that active members may be the only people putting money in apart from the employer. However, the retired members also put a lot of money in and decisions might be made on the discretionary use of funds. I appreciate that the happy days of considering what to do with the surplus are not as relevant now. However, such days may return; one never knows. Retired members' interests should be fed into the process particularly, as the hon. Member for 
 Eastbourne (Mr. Waterson) said, when those members are organised and well informed. 
 We are with the spirit of the amendments, although I have some quibbles with the detail. Retired members may be very numerous, yet they do not seem to have the same status as active members. The Minister will understand that we are interested in the principle that they should be.

Nigel Waterson: Does the hon. Gentleman agree that, if anything, those arguments are more pressing when considering the members of a closed fund?

Steve Webb: If no active members are putting money into a scheme, the position of retired members is obviously important.
 I was not sure about amendment No. 295. I do not think that we are quibbling about the detail. There is an issue of principle to consider: should the status of retired members drawing pensions not be the same as that of active members, who are given a specific, identified role? That is what we are probing.

Chris Pond: We heard persuasive arguments from the hon. Members for Eastbourne and for Northavon (Mr. Webb), representing organisations that themselves make powerful and important arguments. In responding to those arguments, I want to make two general points before coming on to the specifics.
 First, we are discussing part 5. I draw that to the Committee's attention because although it is entitled ''Occupational and personal pension schemes: miscellaneous provisions'', we are dealing with important issues. Part 5 develops the Government's key pension themes of simplicity, security and choice. I make that point because all the time we are trying to find the right balance between simplicity and security. How do we ensure that people's interests are properly represented? How do we provide them with the lifeboats and the safety belts while ensuring the simplicity that is so important for a scheme's flexibility, which allows them to be so vibrant? How do we ensure that there is regeneration across the board? 
 Secondly, I reiterate the point repeated by the hon. Member for Northavon about the role of trustees. We all understand that trustees represent the generality of interests of the members as a whole and not any particular group. If we keep those two points at the forefront of our minds, it will be easier to understand the significance of the amendments. 
 The effect of amendments Nos. 267 and 269 would be to require trustees to involve all the active and pensioner members in the nomination of member-nominated trustees, or member-nominated directors in the case of closed funds. They would also require the arrangements to involve at least all the active and pensioner members in the final selection process. 
 Amendments Nos. 295 and 296 would require at least one of the member-nominated trustees or directors to 
''be nominated by a recognised pensioners' association''.
 As drafted, the clauses provide that only active members must be involved in the nomination and that the final selection would be made by some or all of the members. We stipulated that as a minimum all active members must be able to participate in the nomination to ensure that the nomination and selection procedures could not be determined and operated by a handful of people behind closed doors. No one in the Committee would want that to happen. 
 I stress that we are talking about a minimum requirement. We hope and expect that trustees will use the flexibility that they are given to devise nomination selection arrangements that are right for their scheme without having to worry about a plethora of Government regulations. That brings us to the issues of security on the one hand and simplicity on the other. 
 The requirement that the final selection be made by some or all of the members is practical recognition of the fact that requiring the involvement of all members would be a large and expensive undertaking and that it would be unreasonable to impose that on schemes—I stress the word ''impose''. If schemes wish to involve all members, that is fine, but imposing that as a requirement could be a problem. It would also disrupt existing arrangements without good reason. There is nothing wrong with a pensions consultative committee or a trade union-based selection panel making the final choice between nominees, but that would not be acceptable if we agreed to the amendment.

Steve Webb: If we say that active members have to be represented as part of the process, but that retired members drawing pensions do not, it is as if there is a first-class and a second-class membership of the scheme. There is no huge, burdensome complexity in saying that retired members should have equal status. I appreciate that one could not write to everybody, but where schemes had organised groups, doing so would not be that onerous or complicated.

Chris Pond: It could be quite complicated and onerous, in terms of the requirements on schemes. Some schemes will involve all members anyway, but to make doing so a requirement could be quite onerous.
 Certainly, we do not intend to create first-class and second-class members of schemes, but I come back to a point that both the hon. Gentleman and I have made: what are trustees there for? Are they there to represent the generality of interests of all members, or a particular group of members? That is where we have some difficulty with the amendments.

Nigel Waterson: Surely the Under-Secretary's point is double-edged. We could be discussing an amendment that said exactly the opposite because the clause said exactly the opposite. I do not think that that is an argument. Pensioners have at least as legitimate a say as anyone else. I have a subsidiary question: given the practical difficulties that some schemes may have in attracting enough of the right kind of people to volunteer, why not cast the net as widely as possible in the clause?

Chris Pond: I agree that we need to cast our net widely to ensure that we have as broad a representation as possible. We have always decided
 that trustees should not have a representative role, and we have to focus on our main priority of ensuring that every scheme has members on the trustee board. The hon. Gentleman and I would agree on that. All trustees should have the same roles and responsibilities in respect of all members. There is a danger of seeming to suggest otherwise if we make a special case for pensioners, for which the hon. Members for Eastbourne and for Northavon argue.
 The issues of who the member-nominated trustees should be, and whether they should be active, pensioner or deferred members, are best left to the trustees and scheme members to determine. They know the scheme, its maturity and the balance between the different categories of member better than anyone—certainly better than any of us in Committee and better than the Government. 
 Amendments Nos. 295 and 296, taken together, would effectively require all schemes to set up or recognise pensioners associations, regardless of the size or profile of the membership. There would be no problem at all with the pensioners associations—quite the opposite, as hon. Members might expect—but it is for trustees, employers and members to decide between them whether they have a formal role in a particular scheme. Again, that is not something that the Committee, or a Government, should impose.

Steve Webb: I still cannot get my head around the point on second-class membership. The Under-Secretary is saying that there is a requirement for active members to be involved because we do not want things to be done behind closed doors , but why does that not apply equally to pensioners? He says that pensioners cannot be required to be involved because every scheme is different and should make it up for itself, but the Bill includes active members. Why are they more important than pensioners?

Chris Pond: We are not saying that. We are establishing a minimum requirement for the active members to have representation. It is for schemes and trustees to decide whether they wish to extend that to bring the pensioner and deferred members into that category. All we are doing in the Bill is establishing a basic minimum floor, on which individual schemes can build according to their circumstances.

Nigel Waterson: I am still having trouble getting my head around this point. If the word ''active'' were removed, no one would disagree. We all agree that there should be a minimum floor and beyond that, people should be left to get on with it—but the Minister has not answered the question about why a distinction should be drawn between the active members and the pensioners. It defies understanding. There may be a good reason for it, but that has not yet been revealed to the Committee.

Chris Pond: I am clearly not being very persuasive. As I said, we are establishing a minimum floor, which is the participation of the active members. I think that Committee members will agree that the active members are currently engaged in the scheme, and that those who have left the scheme and are pensioners are in a different position. We are not saying that the
 pensioners are in a worse or second-rate position. In many schemes it will be felt to be right that those interests should be represented separately and that the deferred members should be represented too, which is fine. All we are doing in the Bill is establishing that base-line.
 If we accepted the amendments, far from creating simpler legislation, we would make the legislation significantly more onerous than the present Act—the 1995 Act. If it were amended in that way, the Bill would require every scheme to involve every active and pensioner member, even when that meant tens of thousands of people. In every case where trustee nominations exceeded vacancies, every scheme would be required to recognise a pensioner association. As I stated earlier, the aim of the clauses is to provide flexibility by radically simplifying the legislation. We accept that simplification comes with a degree of risk attached. We are handing the responsibility to trustees to decide what is best for their scheme. That may carry risks, but it is the right thing to do. 
 The amendments would be an unnecessary step backwards to the sort of prescriptive or restrictive legislation that we are trying to get away from, and would impose unnecessary burdens on schemes. Clause 198 contains a power to make regulations modifying the application of clauses 196 and 197 in prescribed cases. We will consider in due course how those regulations should deal with schemes that have no active members, which is a matter for concern to members of the Committee. I hope that the hon. Gentleman will feel able to withdraw his amendment.

Nigel Waterson: I do not want to bring a churlish note to these otherwise amicable proceedings, but I am wholly unconvinced. I get the impression that the hon. Member for Northavon shares my total lack of conviction. The last refuge of a Minister defending a Bill is to say that the amendments would make it more complicated. That is a bit rich, coming from the people who produced this Bill. If amendments would make it right, so what if it is slightly more complicated? Moreover, if the word ''active'' were removed, it would make the Bill less complicated, and this problem would largely be solved.
 I fail to understand what the Minister has got against pensioner members. Is it because they are older? Is this a bizarre form of institutional age discrimination on the part of the Department? One could argue that pensioners have more time to spend on their ever more onerous duties, to which we will come shortly. They might have considerably more experience of the problems that we are all talking about. There is no good reason why the amendments, or at least the principle behind them, should not be accepted. On a practical level, people will have real difficulties attracting trustees in future because of what the Government are doing later in this part of the Bill. The Minister shakes his head. That is up to him. He can shake his own head, to quote Churchill: I am making my own point. The idea behind the amendments is right and proper. 
 I shall seek leave to withdraw the amendments—what difference would it make if I did not? None the 
 less, I am wholly unconvinced by what the Minister said. I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn.

Kevin Brennan: I beg to move amendment No. 300, in
clause 196, page 122, line 31, leave out ', and' and insert— 
 '(aa) that before those arrangements are made, reasonable steps have to be taken to consult the active members of the scheme, and'.

James Cran: With this it will be convenient to discuss amendment No. 304, in
clause 197, page 123, line 39, leave out ', and' and insert— 
 '(aa) that before those arrangements are made, reasonable steps have been taken to consult the active members of the scheme, and'.

Kevin Brennan: Again, my amendments are intended gently to probe my hon. Friends the Ministers. They know that I am an admirer both of them and of the entire ministerial team—and when they next see the Secretary of State, could they tell him that I think he is a great guy? [Hon. Members: ''Tell him yourself.''] Oh yes, I am sorry; I did not notice that he was here.
 As the hon. Member for Eastbourne rightly recognised, the amendments draw their inspiration from the trade union movement, although not necessarily from the TUC. Some points about consultation need to be clarified, and there is a particular concern that the Bill might allow trustees to implement a system of selecting member-nominated trustees with considerable discretion. I understand that the Bill is not intended to be complicated or too prescriptive, but the trade unions believe that there should be consultation with members as to the nature of the system of selecting member-nominated trustees. 
 The code of practice is not binding, so dissatisfied members appear to have no resort apart from complaining to the ombudsman after the event if they have a concern about the manner of the arrangements for the selection of member-nominated trustees. For example, members may feel that they are so manifestly unrepresented that it constitutes a breach of trust. 
 Member-nominated trustees are intended to boost member confidence as well as to improve the running of schemes. Members should have an opportunity to comment on proposed arrangements before they are implemented rather than having to rely on a complaint to the ombudsman after something has gone wrong. Now I would like to hear the Under-Secretary's response.

James Cran: Order. I did not interrupt the hon. Gentleman at the time, but the Committee should know that it is inadmissible to refer to anybody in the Gallery, even an eminent member of the Government.

Kevin Brennan: I was not aware that there was anybody there, Mr. Cran.

James Cran: It had better not happen again.

Nigel Waterson: I just want to say that I too think that the Secretary of State is a great guy, but he is making a terrible hash of running the Department for Work and Pensions.

James Cran: If only I had known that that was what the hon. Gentleman was going to say, I would never have allowed him to speak.

Chris Pond: Amendments Nos. 300 and 304 would require trustees to consult the active members of a scheme about the arrangements for nominating and selecting member-nominated trustees and directors before those arrangements are made. We can all agree that consultation is a good thing—there are clear benefits in maintaining good communication between trustees and members and in having nomination selection arrangements that scheme members are happy with. The question is whether it is reasonable or necessary to inscribe that requirement in tablets of legislation.
 Many pension schemes have long-standing trustee nomination and selection procedures that have developed over time as a result of good industrial relations. I see no value in requiring those schemes to conduct an expensive consultation exercise. I hope that trustees will maintain good dialogue with members, but there is no justification for introducing a statutory requirement. 
 Clauses 196 and 197 contain minimum requirements that all schemes must incorporate into their nomination and selection arrangements. For example, at least all the active members must be eligible to participate in the nomination process, and any selection arrangements must involve some or all of the scheme members. We do not want to go beyond those essential requirements. Our aim in these clauses is to remove unnecessary legislative burdens and to leave the people who know the scheme best—the trustees—to get on with the job. 
 I hope that my hon. Friend the Member for Cardiff, West agrees with the spirit of the following statement: consultation should be encouraged, but it is not necessarily enhanced if it is made a requirement.

Kevin Brennan: I do not want to press this to a Division, so I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Nigel Waterson: I beg to move amendment No. 266, in
clause 196, page 122, line 31, at end insert— 
 '( ) that those arrangements are fair and open, and'.

James Cran: With this it will be convenient to discuss the following:
 Amendment No. 280, in 
clause 196, page 122, line 32, after 'are', insert 
 'fair and open and are'.
 Amendment No. 268, in 
clause 197, page 123, line 39, at end insert— 
 '( ) that those arrangements are fair and open, and'.

Nigel Waterson: A Liberal Democrat amendment has somehow got into this group, but I will speak only to
 amendments Nos. 266 and 268, and the Liberals will have to paddle their own canoe with amendment No. 280.
 On the face of things, it is difficult to see how our amendments could cause the Government any difficulties. They merely suggest that arrangements should be ''fair and open''. People might ask, what could be wrong with that? However, there is some history to this matter. 
 In their 2002 Green Paper, ''Simplicity, security and choice: Working and saving for retirement'', the Government reaffirmed their commitment to boards of pensions trustees containing one third member-nominated trustees. They intended to remove the employer opt-out, which was a creature of the previous legislation, but to reduce the level of prescription in the method of selection. The technical paper issued at the same time as the Green Paper proposed two options. One of them was the option put forward in the Pickering report that provides for only a minimum requirement in legislation—the one-third rule for member-nominated trustees. The second option was to qualify that minimum requirement with a further condition in the legislation—that arrangements for nominating and selecting member-nominated trustees must be fair and open. 
 During the consultation on those documents, concerns were expressed that more flexible legislation would give unscrupulous schemes the scope to avoid member-nominated trustees altogether, or to disfranchise certain members or groups of members, rather as the Government are seeking to disfranchise pensioners—although we have finished that debate for the moment. It was also suggested that schemes should be free to adopt arrangements to suit their own circumstances and—as the regulatory impact assessment states—focus more on outcome than process. The RIA says that there was widespread concern that 
''enforcing a 'fair and open' test would be difficult, time consuming and expensive and lead to vexatious complaints to the regulator.''
 As a result, the Government decided to adopt the first option. 
 We are not wholly convinced by that argument; hence these two amendments. Unless the legislation applies the ''fair and open'' test, there could be considerable unhappiness among members of schemes. It is looking at life through the wrong end of the telescope to say that one of the reasons for not requiring a test of fairness and openness is the fact that it could lead to vexatious complaints to the regulator; it could also lead to perfectly justifiable complaints to the regulator. Who is the author of the regulatory impact assessment—whoever he may be—to take that lordly view? 
 I am not prepared to go to the stake over the amendments, but I would be interested to hear how the Government concluded that they wanted to go for option one rather than option two.

Steve Webb: I will not add much to what the hon. Gentleman has said. Obviously, we trenchantly
 disagreed with the Conservatives and took the view that the point in question would be far better made in line 32 than in line 31. That is the only real difference between amendment No. 280 and amendment No. 266. We may be wrong, because we amended what was given to us. The key point—

Nigel Waterson: Get on with it.

Steve Webb: That is rich, coming from the hon. Member for Eastbourne.
 The key point is that it is hard to conceive of an acceptable process for determining the membership of the trustees that was not fair and open. I am sure that the Minister will say that the Government want the process to be fair and open—I can feel it coming—so why not put it in the Bill? I accept that there is an issue of balance. However, in our judgment, the balance must be that the members should expect fairness and openness at the very least. As for vexatiousness and prejudging the issue, clearly there could be a threshold, and some cases could be dismissed out of hand. A vexatious litigant who never lets go and is like a dog with a bone could have his case thrown out.

Nigel Waterson: Would it not be nice if people felt that strongly about those issues?

Steve Webb: I am sure that people do feel that strongly, judging by the representations that we receive on such matters. As I say, mechanisms are in place to deal with the vexatious, but to use vexatious litigants as a reason for not putting the words ''fair and open'' in the Bill is hard to justify. I look forward to the Under-Secretary's acceptance of our amendment No. 280—although I could live with an acceptance of amendment No. 266.

Chris Pond: I shall not let the hon. Member for Eastbourne get away with his suggestion that we are seeking to disfranchise pensioners. Their interests are represented by the trustees, as are those of any other members of the scheme. It was terribly perceptive of the hon. Member for Northavon to anticipate that I would say that fairness and openness are both good things, and that on the whole, the Government believe them to be so. The amendments would introduce a requirement for trustees that the arrangements be ''fair and open'', and we all think that that is a great idea—

Nigel Waterson: But?

Chris Pond: The but comes in a few lines. We put that idea forward for discussion in the technical paper that accompanied the Green Paper. We listened carefully to the arguments put forward during the consultation, including the argument that fairness and openness are essential if members are to have confidence in the process and the trustees. Now comes the but—the problem is this: what does ''fair and open'' mean in practice? I think that the hon. Member for Eastbourne will tell us in a moment. For example, what would the arrangements have to provide if a company was based on several different sites and had different numbers of staff at each? How should the arrangements deal with schemes with different maturity and numerous variations in the ratio of active, deferred and pensioner members?
 If we were to leave the regulator to deal with all that in a code of practice, we would be back where we are now—with reams of detailed and prescriptive procedures. That is where it all comes down to the balance that the hon. Member for Northavon mentioned. On balance, we decided that our priority is simplification and flexibility. We tell the trustees what the required outcome is, and we let them decide how to achieve it. We all accept that the responsibilities and demands on trustees are significant and that we must, as far as possible, encourage and not deter people from taking on that valuable role. Therefore, we should also be prepared to accept that wherever possible, we allow trustees to carry out those responsibilities in a sensible and practical manner. 
 I understand the concerns that if we do not legislate for ''fair and open'' practice, we leave the door open for unscrupulous trustees. However, I would ask the Committee to examine the Bill as a whole. It has many built-in safeguards, such as the new regulator, which we have discussed in previous sittings and which has a wider range of powers and a more risk-based approach, and the new requirements in clause 200 relating to the knowledge and understand of individual trustees. We will have more schemes with member-nominated trustees, more knowledgeable trustees generally, and a regulator that can step in if the scheme is not being run properly. 
 Clause 196 taken with clauses 197 and 198 will result in more ordinary members becoming involved in the running of pensions schemes. At the same time, it will bring simplification to occupational schemes. That strikes the right balance. The amendments, however, would result in the sort of complexity and restriction that we are trying to move away from.

Nigel Waterson: The Under-Secretary is wrong on one count: I am not going to tell him what I believe ''fair and open'' means—although there are many lawyers and judges who would answer that question for any individual case.

Chris Pond: That is the problem.

Nigel Waterson: That is a slightly bizarre way of looking at it. If people are aggrieved, they can be genuinely aggrieved as well as being vexatious. The Minister has taken the view that all objectors are potentially vexatious, so he wants to shut off that avenue of complaint. However, if we are to reinvest the role of trustees with a new energy and appeal, why not give people a channel through which they can express their concerns about the way in which trustees are selected? I do not understand the logic of the Minister's objection, but for the sake of amity and progress, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Kevin Brennan: I beg to move amendment No. 302, in
clause 196, page 123, line 8, after 'provide', insert 
 'for the filling of vacancies within a reasonable period and'.

James Cran: With this it will be convenient to discuss amendment No. 306, in
clause 197, page 124, line 12, after 'provide', insert 
 'for the filling of vacancies within a reasonable period and'.

Kevin Brennan: These amendments address a relatively minor issue, but one about which trade unions nevertheless have concerns. They would like some reassurance. The amendments would require that vacancies, as they arise because of resignations and so on, be filled promptly. It is important to safeguard against a situation where vacancies for member-nominated trustees are left unfilled for a prolonged period, as that would leave members unrepresented. We have discussed the 1995 Act on several occasions, and I think that there was a clause to this effect in that Act. It seems reasonable to replicate it in the Bill, and I will be interested to hear my hon. Friend the Under-Secretary's comments.

Chris Pond: I can reassure my hon. Friend that we understand his amendments and share his view that vacancies should be filled within a reasonable time. The difficulty is that trustees cannot force other people to become trustees. It would be unreasonable to put trustees in a position where they would be in breach of a statutory requirement through no fault of their own.
 If, for example, a vacancy for a member-nominated trustee arises, clause 196(5)(a) requires the trustees to try to fill it. If no one is nominated, clause 196(5)(b) will ensure that the vacancy is readvertised at reasonable intervals until it is filled. Similar provisions apply under clause 197 for member-nominated directors of corporate trusts. That is all that we can reasonably expect trustees to do. I am sure that the Committee agrees that the last thing we want is to force trustees to press-gang people into becoming member-nominated trustees. For that practical reason, I ask my hon. Friend to withdraw his amendment, although we share his belief that we must get vacancies filled as soon as practicably or reasonably possible.

Kevin Brennan: I do not think that the amendment proposed press-ganging anyone into becoming a trustee, but I am glad of the reassurance that the Bill's intention is that vacancies be filled in a timely and expeditious manner. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 196 ordered to stand part of the Bill. 
 Clause 197 ordered to stand part of the Bill.

Clause 198 - Member-nominated trustees and directors: supplementary

Nigel Waterson: I beg to move amendment No. 297, in
clause 198, page 125, line 2, leave out subsection (1).
 One of the peculiarities and joys of this Bill is that whenever we turn a corner, we stumble across a piece of drafting that we have never seen before, either in legal practice or in the House. 
 The amendment seeks to remove clause 198(1). It is a probing amendment, designed to get to the bottom 
 of what the Government aim to achieve. The subsection concerns the famous regulations, of which we have yet to see a single line of a single draft—although as we wear our weary way through the Bill's clauses, I live in hope. It says that regulations 
''may modify sections 196 and 197 in their application to prescribed cases.''
 What on earth does that mean? It is bad enough having regulations modifying primary legislation, which is what is inherent in the first part of that sentence. That is something to be avoided wherever possible. After all, what is the point of our debating the clauses if they can later be modified when the Department has second thoughts? 
 However, it is the words 
''in their application to prescribed cases''
 that I am puzzled about. What does that mean? What are prescribed cases? Have I missed a definition somewhere in a subsection or schedule? It is surely not suggesting that the effects of clauses 196 and 197 can be modified for specific disputes relating to particular schemes. If it is—I am looking for a shake or nod of the head—that would be wholly unacceptable. With my usual faith in the Under-Secretary, I rely on his shaking his head. Perhaps he can tell us what it means.

Chris Pond: Amendment No. 297 would remove the power to make regulations to modify the application of clauses 196 and 197 in prescribed cases. The hon. Gentleman rightly asked for some explanation of how we intend to use that power.
 From our experience with the existing member-nominated trustee and director requirements, we know that the diversity and variety of schemes makes it likely that there will be situations in which the requirements as drafted will need to be modified. That is less likely with the simplified provisions, as there is more scope for schemes to adopt arrangements that suit their circumstances. Nevertheless, it is prudent—and, in the context of yesterday's statement, perhaps purposeful as well—to reserve a power to modify if it proves necessary. 
 The only example that we have identified relates to clause 196(2)(a), which requires the nomination process to involve 
''at least all the active members''.
 We may need to modify that by regulations for schemes where there are no active members. Incidentally, the fact that schemes exist with no active members, just as there will be some with no pensioners, illustrates the sheer variety of schemes, and why the modification power is necessary. 
 With that clarification, I hope that the hon. Gentleman feels able to withdraw the amendment.

Nigel Waterson: There are times during the Committee stage of a Bill where one begins to question whether one is seriously engaged in making the world a better place. One even reflects on the meaning of life. It is intensely depressing to hear that, having had a well informed and interesting debate—everything is relative, of course—about active members versus pensioner members, that could all be
 changed later at the flick of a pen. That seems to be what the subsection means. Am I misinterpreting what the Under-Secretary said?
 I do not think that Ministers should take such powers. They should debate the issues, defend the Bill if necessary, force it through and put it on the statute book—but say, ''Well, there may be a problem here after all, and we'll deal with it later,'' is not good enough. Despite that fact, I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Clause 198 ordered to stand part of the Bill.

Clause 199 - Investment principles

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: I thought I saw the Minister twitching, but that might just have been the effect of the Bill.
 To what extent is it envisaged that limits will be put on investment principles in regulation or elsewhere? That would be the right thing to do, of course. It is a development from the 1995 Act, which says that any trustees of any scheme should set out their investment principles clearly and openly and that those should be reviewed. I have no difficulty with that. Do the Government have in mind further regulations or measures to limit the scope of trustees to invest in particular products or items? There is less enthusiasm now for equities, so other guidance may needed. 
 A specific issue has been raised with me about the use of derivatives, which trustees may wish to use for various purposes relating to the management of their investments. For example, different options may be used to manage different risks. If the business of a trustee of a pension scheme is anything, it is, hopefully, to manage risk, not least in the context of the risk-based levy. I do not want to anticipate our debates on that, but I am already getting quite excited about it. 
 I am informed that for tax purposes, section 659A of the Income and Corporation Taxes Act 1988 specifically provides that futures and options are to be treated as investments for the purposes of section 592(2) of that Act, so that exempt, approved retirement benefit schemes may claim exemption from income tax in respect of income derived from such contracts. The relevant bulletin from the Inland Revenue says that it will also regard certain swaps—where have I heard that expression before?—as investments for tax purposes 
''Where an approved pension scheme uses interest rate swaps, currency swaps, equity swaps, credit derivatives or similar instruments . . . To hedge risks inherent in its existing investment portfolio of shares, bonds or similar securities, or . . . As part of a strategy to enhance the return from its existing investment portfolio, or . . . To create a synthetic exposure to investments of a particular type or in a particular market in line with the fund's normal policies of investing directly in such instruments''.
 I hope that everyone is with me so far. However, the fact that these derivative contracts may be regarded as investments for tax purposes does not mean that 
 trustees have the power to use them when there are no specific powers in scheme rules. 
 The view of most lawyers who specialise in this area—hon. Members will not be surprised to hear that the briefing comes from one of them—is that the power to make an investment contained in section 34(1) of the 1995 Act is not sufficient to enable trustees to enter into derivative contracts. That is because the term ''investment'' is generally interpreted as referring to assets that are expected to produce income or capital appreciation rather than assets that are tools for managing risk. Had I received the briefing in time, I would have tabled a long—if not long, then at least fairly complex—amendment to deal with the problem. 
 One problem is that derivative contracts may require the trustees to assume obligations that may continue over a period of time and to provide security for any obligations that they may incur under the relevant contracts. In a traditional investment, the use of derivative contracts may require the trustees to do more than make a single payment at the outset of a transaction. To break it down into layman's terms, the derivative products that are now so popular and sophisticated allow trustees to manage risk, which has to be a good thing. I am not talking about swaps in the context of local councils that got into difficulties with swaps a few years ago. I am reliably informed that the legislation does not allow for that kind of investment. I suspect that the Minister may ultimately say that he will write to me, as this is a complex issue that is clearly important.

Malcolm Wicks: Good afternoon to you, Mr. Cran, and I welcome the hon. Member for Eastbourne to this afternoon's sitting. I am sure that his colleague, the hon. Member for Tatton (Mr. Osborne), brought him up to date on our proceedings this morning. It is good to see the hon. Member for Eastbourne clocking on to the late shift. Part-time work is an important part of the shadow economy, as we might call it.

James Cran: We must move along.

Malcolm Wicks: Yes, we must.
 Clause 199 is essentially a technical amendment to the provisions of the Pensions Act 1995 concerning the trustees' duty to maintain a written statement of investment principles. It takes account of article 12 of the EU directive on occupational retirement provision, which requires statements to be revised without delay after any significant changes are made to the investment policy and to be reviewed at least every three years. By contrast, the 1995 Act requires periodic reviews, but not within a specific time scale. The clause concerns the duty of the trustees to declare what their investment policy is, not what that policy should be. 
 We are considering the implications of the EU directive on investment by pension funds and whether we need further provisions. Of course, Inland Revenue rules are not the subject of the Bill, so the points that the hon. Member for Eastbourne raised are, although interesting, not strictly relevant. I have spoken about 
 introducing proposals, if needed. I listened to the technical point on derivatives with great interest but, as the hon. Gentleman anticipated, because he is a reasonable man, I will write to him on that. 
 Question put and agreed to. 
 Clause 199 ordered to stand part of the Bill.

Clause 200 - Requirement for knowledge and understanding: individual trustees

Kevin Brennan: I beg to move amendment No. 307, in
clause 200, page 126, line 25, at end insert— 
 '(6) The trustees of an occupational pension scheme must ensure that persons wishing to become member-nominated trustees are given a reasonable opportunity to obtain the knowledge and understanding required by this section before they put themselves forward for selection.'.

James Cran: With this we may discuss the following amendments: No. 308, in
clause 201, page 127, line 14, at end insert— 
 '(8) A company to which this section applies must ensure that persons wishing to become an individual within the meaning of subsection (3) above are given a reasonable opportunity to obtain the knowledge and understanding required by this section before they put themselves forward for selection.'.
 No. 309, in 
clause 202, page 127, line 29, at end insert— 
 '(4) The Regulator must not take any step to enforce the obligations imposed upon individuals under section 200 and upon companies under section 201 until 12 months have elapsed since the individual concerned has been a trustee or begun to exercise any function which the company has as trustee.'.

Kevin Brennan: Clause 200 requires knowledge and understanding from individual trustees, and that is welcome. The purpose of the amendments is to tease out the Government's thoughts on people wishing to put themselves forward as trustees for schemes when they do not have the knowledge and understanding required. They might wonder how they can acquire the knowledge and understanding that is required by the clause. The amendments would place on trustees an obligation to facilitate the acquisition of the required knowledge by those who aspire to become trustees and to allow trustees a reasonable period of grace after their appointment in which to obtain that required knowledge. The Minister may tell me that, in a practical sense, the amendments are not necessary because the Bill will allow that to happen anyway, but I would be interested to hear his observations.
 Although the clause is welcome and its objective is worthy, it is important that it does not in any way deter members from putting themselves forward on account of any lack of knowledge on their part. For those considering putting themselves forward, selection is an uncertain prospect, so candidates will not always be willing to invest the required amount of time in the acquisition of the knowledge needed prior to selection. The confidence of trustees is important, and the gaining of that confidence is the purpose of the clause, but trustees also need to command the confidence of members of the scheme if they are to be put forward as member-nominated trustees. Those two things may not always be confluent in someone 
 when they put their name forward. The amendments would provide help to prospective candidates and encourage trustee training.

Nigel Waterson: I am inclined to deal with not only the amendments but also more general issues to avoid a stand part debate. That is convenient for the Opposition, but let us see how we go.
 There is a real possibility of invoking the law of unintended consequences—something that the Government are very good at. We accept that there is always scope for improving the abilities and experience of trustees. I am not privy to the details, but some of the problems that we have seen might have been avoided or made less serious by well informed trustees. A balance must be struck because the Opposition fear—we are expressing the views of many people who know better than we in Committee do—that there will be an exodus of trustees who, rather like non-executive directors, will consider the potential responsibilities and liabilities versus the rewards and decide that they could do other things with their lives. 
 Equally, there might be a shortage of new people entering the role. We might have a professional class of trustees who are sufficiently qualified and able to perform the tasks laid before them, particularly in subsection (4). That might be fine for very large schemes, but not for small ones, particularly given the likely costs. 
 I am not suggesting that there is no problem to address. On 9 March, PricewaterhouseCoopers published a study of UK pension scheme governance. It showed that 65 per cent. of respondents had no governance compliance policy in place. Some 85 per cent. said that they had no individual governance benchmarks to measure the performance of trustees. The survey involved 66 chairmen of major UK pension funds and showed that few have implemented all the recommendations of the Myners report in 2001. Some 45 per cent. of trustee boards have not reviewed their knowledge and skills. The survey suggests a range of actions that pension funds need to take, starting with the development of a Government policy for the scheme, the assessment of skills levels and the rectification of shortfalls in those skills. PricewaterhouseCoopers also says that benchmarks must be established to measure compliance. 
 The National Association of Pension Funds is setting up an online registry of investment professionals who want to serve as pension fund trustees or to help pension fund investment committees. It says it wants to act as a broker to get people with investment experience into pension funds. That is sensible in principle, although I can see the beginnings of that professional class of trustees. If the Government are determined to go down that line, what kind of yardstick will they impose for the trustees of the future? They will put important requirements on trustees to acquire the knowledge and experience, plus other requirements as might be prescribed, so here we are again; no doubt there will be regulations in due course. 
 Will there be an approved qualification or course? I was talking to my hon. Friend the Member for Bournemouth, West (Sir John Butterfill), chairman of the trustees of our own pension fund, who told me that he and his fellow trustees are going on a course with the Pensions Management Institute to ensure that they have the relevant skills. I am sure that we are all delighted to hear that. I gather that the course is quite demanding, that it involves a lot of reading and that there is a written examination at the end. Let us hope that they all pass. 
 I am not suggesting that the Minister can deal with this point on the spot, but there may be some sense later on in setting out the qualifications that would-be trustees would have to obtain to reach what is regarded as the benchmark of what is required. If not, many people will find subsection (4) off-putting. 
 The CBI has also made representations to us. It believes that a legal requirement concerning knowledge and understanding of the funding of schemes and investment is unnecessary and would 
''undermine the willingness of member nominated trustees to serve on trustee boards.''
 The CBI believes that 
''while training is important, qualifications are not required and will only encourage a tick-box compliance mentality''
 and that 
''a requirement for qualifications will only deter more people from volunteering''.
 It is interesting to glance at the relevant part of the regulatory impact assessment. It hedges its bets and believes that the benefits of the clauses should include a behavioural change. It reckons that in some cases there will be a financial return for employers as a result of better investment performance. That is good. The RIA also says that there will be a one-off, ongoing administrative cost, which will have no disproportionate impact on a particular business sector. It says: 
''An increased emphasis on training may have administrative implications for pension schemes and possibly employers. The levels of cost will not only vary with the size of the pension scheme, but will also differ depending on the level of expertise that trustees currently possess and the training that they currently undertake.''
 That is not exactly a penetrating insight. Obviously, the less competent or experienced they are now the more training they will need, but what yardstick will be used? 
 The RIA concludes by saying that the proposal might result in additional start-up costs of up to £1,500 per scheme at a total cost of £17 million for each three-year period. That may or may not be an underestimate. As it rightly says, that is difficult to estimate. How is the Government's thinking developing on qualifications that trustees can obtain to guarantee that they are within the requirements of the clause?

Steve Webb: I shall address my remarks to amendment No. 309, which is closest in spirit to a proposal that we have sympathy with, which is that a person can become a trustee and have 12 months to reach the standard required under the clause. I am
 concerned whether it will be possible to have enough trustees and whether particular people who have something to contribute might otherwise be discouraged or even debarred from becoming trustees.
 I am sure that the Government will say, ''Yes, but look at subsection (5), which says that a person only needs to know enough to do the job.'' In other words, whereas subsection (4)(a) seems a little terrifying because a person must have knowledge of the law relating to pensions and trusts—at which point we would all probably give up—subsection (5) says that although that is necessary, the person only needs to know enough to do the job. Who could object to trustees knowing enough to do the job? 
 My worry is that although it is obviously desirable that the majority of the trustees have that technical legal knowledge, it is less clear whether that should be a requirement of each trustee. The clause applies to all trustees. Why did the Government not draft a requirement that two thirds of the trustees must be technically and legally up to speed with the latest trust law and so on? That would ensure that there was plenty of expertise in the room, but it would not debar retired members or someone who is not expert in trust law from participating. That person could have a perspective as someone who knows the scheme or appreciates the experiences of retired members from which the trustees could benefit when judging what is in the interests of all scheme members. However, that person might not consider it was worth the candle if they had to jump through the hoops. 
 Given the constantly changing nature of pensions law, we have to recognise that such knowledge would not be a one-off requirement, but a continuing professional development requirement. It would be necessary to keep on top of the subject and people would have to update their knowledge. 
 We do not want to be misunderstood; we are not saying that we do not think it a good thing that trustees know what they are talking about. We would not want to be parodied in that way. However, the Government have gone to the extreme of applying the requirement to 100 per cent. of trustees in all schemes. Will they consider whether that 100 per cent. requirement is necessarily right? What about two thirds or three quarters of trustees being subject to the requirement? There would then be plenty of expertise in the room, without some people being discouraged. 
 The requirement clearly applies to all schemes. Do we need to require all trustees of all schemes to satisfy the requirement? Would that not be particularly onerous for very small schemes with a tiny number of members? If such members ran their own scheme and were its trustees, they would have enough incentive to do that properly anyway. Frankly, in such a case, the requirement might be unnecessarily onerous. Should it apply equally to the whole diversity of schemes? We have heard that there are 150,000 different schemes. Many are tiny and some are huge. I am not sure that the regulations should apply equally in all cases. 
 Without pre-empting the debate on clause 202, I cannot help noticing that two clauses on, the Government have again reserved their power to rip that up. As the hon. Member for Eastbourne might have observed, clause 202(2) states: 
''Regulations may provide for any provision in section 200 or 201—
(a) not to apply, or
(b) to apply with modifications''.
 I sense that the Government think that they might have got it wrong, or that they are a bit worried and are reserving the right to change it all in regulation, which, again, is a slightly worrying precedent. 
 Nobody is against well informed trustees, but what would happen if a trustee dies, retires, stands down or whatever, and the vacancy cannot be filled? What if that becomes a regular occurrence? People will look at the requirements and, despite the assurances that I am sure the Minister will give us—that it is only a minimal requirement and that the trustees only have to know enough to do the job properly—they may be put off and there will start to be a shortage. 
 What would the practical consequences of that be? Is that why there is the possibility of changing the rules later on? Are the Government keeping the door open because they are concerned that a real shortage of trustees might be generated and that there might be a problem for schemes even to operate within the law at all? 
 I have several key questions. Is it necessary to impose the knowledge requirement on 100 per cent. of trustees? Does that requirement have to apply to the whole diversity of schemes? What will happen if potential trustees think, perhaps as a result of a misperception, ''I am not going to keep myself updated on trust law'', and we have the systematic problem of there not being enough trustees?

Malcolm Wicks: Amendments Nos. 307 and 308, tabled by my hon. Friend the Member for Cardiff, West, are designed to ensure that member-nominated trustees—or in the case of corporate trustees, an individual acting on their behalf—are given the opportunity to obtain the knowledge and understanding required by the Bill before taking up their duties. In addition, amendment No. 309 would prevent the regulator from enforcing the requirement for knowledge and understanding until trustees had been in post for one year. I certainly believe that those amendments are well intentioned.
 Slightly different considerations apply in relation to individual trustees and corporate trustees. On amendment No. 307, I accept that it would be desirable for those considering putting themselves forward as member-nominated trustees to have a good idea of the duties and responsibilities of a pension scheme trustee at the outset. However, I do not think that it should be the trustees' responsibility to ensure that they are given that chance. In any case, I am doubtful that developing a concept of ''studying'' to be a trustee would be helpful in encouraging people to put themselves forward for trusteeship in the first place. 
 However, we entirely accept that it would be unreasonable to require an individual trustee to be compliant with the terms of clause 200 immediately on appointment. That is why we plan to use the regulation-making powers under clause 202 to ensure that any new trustees are given a period of grace. With corporate trustees, there may be a case for not applying the period of grace in certain circumstances, such as for a professional, independent trustee. Under clause 201, the responsibility falls on a corporate trustee as a company to ensure that anyone carrying out trustee functions has the relevant knowledge and understanding as soon as they are required by the company to undertake such duties. That properly reflects the difference in status between an individual and a professional corporate trustee, and we will consult on it when preparing our regulations. 
 Amendment No. 309 would place a duty on the regulator not to enforce the requirement on trustees' knowledge and understanding for 12 months after they take up duties. Our proposals for a period of grace would achieve much the same result and we will consult on the length of such a period. 
 On the level of knowledge involved and the fears expressed by the hon. Member for Eastbourne, I shall explain what we mean by conversant with law and by knowledge and understanding. We do not expect trustees to be experts on everything or to have the detailed technical knowledge of a professional. We are not seeking to professionalise the role of the trustee. We want them to have a rounded knowledge of the schemes and I doubt that any hon. Member would oppose that—none of us could present an argument for having ignorant trustees. They need to know what the trust deed and scheme rules say and what other policies have been adopted by the scheme. That is what we mean by conversant. 
 Trustees also need a good understanding of the theory and practice of occupational pensions, notably legal, funding and investment issues, in so far as they are relevant to the functions being carried out. Trustees with more specialist functions, for example those serving on an investment sub-committee, would naturally be expected to have a greater knowledge of those matters needed to do the job properly. The regulator will set out the knowledge required and how it might be acquired and demonstrated in a code of practice—we discussed codes of practice in an earlier sitting—drawn up in consultation with the pensions industry and approved by Parliament. 
 Although I realise that an argument is developing that we are seeking to over-professionalise, I hope that Committee members will bring common sense to the discussion. I do not want to draw an exact comparison, but the situation reminds me of the role of school governors. Some years ago it was felt that, given local management of schools and the greater authority and responsibility that the school governing body had, it was appropriate that school governors developed more knowledge and steps were taken in that direction. 
 I do not buy the argument that if one makes the role of trustee more skilled, people will be deterred from applying. We could argue the reverse that by 
 emphasising the important role of trustees, highlighting the skills, offering opportunities for training courses and examination—although there will be no requirement to take exams—we build up the role and status of the trustee, which must surely be a good thing. 
 The hon. Member for Northavon suggested that two thirds of trustees should have the necessary knowledge, but that would not work. Trustees have joint liability and to impose different requirements on them would be inconsistent with the basis of trust law. He also asked what would happen if people did not come forward to become trustees. The common-sense answer is that we would address that if it happened, but, as I have explained, I have no reason to believe that it would. Trustees are important people and will become more important. It is right and proper that they should have the knowledge and skills to do their task properly.

Kevin Brennan: What my hon. Friend said about dealing with the matter in regulation and allowing a period of grace represents common sense, which combined with erudition, as it always is in his case, is an irresistible force. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 200 ordered to stand part of the Bill. 
 Clause 201 ordered to stand part of the Bill.

Clause 202 - Requirement for knowledge and understanding: supplementary

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: I want to raise a couple of issues on a clause to which the adjective ''delphic'' could reasonably be applied. The first couple of lines are a masterpiece of drafting, and define
''a person's functions as trustee of a relevant scheme or any functions which he has by virtue of being such a trustee''.
 That is a perfect circular definition. The clause touches on a point that the Minister referred to when we debated the previous amendment, in that it envisages delegation of investment discretions. We seem to be recognising that some will be more equal than others, as it were. In order to comply with clause 200, some trustees will be expected to have a depth of knowledge—perhaps with a narrower scope—that others will not have. We are already beginning to see a slight definitional problem in relation to whether people comply with the measure. 
 We have the usual good old subsection that seems so popular with the draftsmen of the Bill, which specifies that everything can be changed at the stroke of a pen by regulation—meaning that any provision may apply to a particular trustee ''in prescribed circumstances''. I deprecate that, but we have debated it in a previous context. 
 Subsection (3) says that none of the sections 
''affects any rule of law requiring a trustee to have knowledge of, or expertise in, any matter.''
 Perhaps the Minister could put a little flesh on the bones. What kind of rules of law are we talking about? Clearly, there are the basic trustee Acts. I failed the trusts exam in my first attempt at solicitors finals, so I cannot claim any great expertise. I am sure that the Minister was one of the people who passed on their first attempt. There is basic trustee legislation and a whole raft of legislation on trusts. Is that what he means, or are there some more specific pieces of legislation, besides the 1995 Act, envisaged by subsection (3)?

Malcolm Wicks: It might help if I set out the purposes of clause 202. It adds supplementary provisions to those of clauses 200 and 201 on trustees' knowledge; my speaking note says ''clause 2001''—I know we have a lot of clauses in the Bill, but that would be ridiculous. Clause 202(1) makes it clear that the functions of a trustee include those that may have been delegated to him or her as a member of a sub-committee of trustees. Subsection (2) allows for regulations to disapply or modify those requirements in prescribed circumstances. We intend to use the provision to allow a period of grace for newly appointed trustees to acquire relevant knowledge.
 Subsection (3) provides that the provisions do not affect existing law that may require knowledge or expertise from trustees, so that, for example, the provisions supplement rather than replace existing trust and common law provision on the duty of care owed by trustees. Thus these provisions on trustees' knowledge do not affect the knowledge that should, in truth, already be required by the duty of care. 
 We believe that there are two considerable benefits in the legislation. First, it makes the requirement for appropriate knowledge quite explicit, putting it beyond doubt. Second, it provides the opportunity for the regulator to spell out in a code of practice the sort of knowledge trustees ought to have and how to get it, making trustees' responsibilities clearer. It also enables the regulator to intervene proactively to raise the overall standard of knowledge. I hope that that answers hon. Members' questions.

Nigel Waterson: The Minister talks about the code of practice setting out what knowledge is required and how to get it. Does that mean that the regulator will set out some appropriate courses and qualifications? I thought that the Minister said the opposite when discussing the previous group of amendments.

Malcolm Wicks: We are concerned that there should be appropriate training opportunities and courses for trustees, and there are already providers of such courses. I believe that the trade union movement has a major role to play, but we have made it clear that while some, although perhaps not the hon. Gentleman, may wish to be examined in the subject and enjoy, in the proper sense of the word, that opportunity—we have heard that the trustees of the
 parliamentary fund have volunteered for it—it will not be a requirement to be examined.
 Question put and agreed to. 
 Clause 202 ordered to stand part of the Bill.

Clause 203 - Conditions for pension protection

Malcolm Wicks: I beg to move amendment No. 278, in
clause 203, page 128, line 17, after 'if' insert 
 ', after the date on which he became employed by the transferor,'.
 I shall put the amendment in context. Clause 203 sets out the conditions in which employees involved in a business transfer may be eligible for the pension protection provided by clause 204. Employees can benefit for the first time from a statutory minimum standard of pension protection. Subsections (2), (3) and (4) provide that the pension protection provisions in clause 204 will apply to each of the following three categories of employee: those who are active members of the employer's pension scheme at the time of the transfer; those who are eligible to be a member of the scheme; and, when the scheme has a qualifying period before new employees are eligible to join, those who would have been eligible if they had continued to work for the transferor employer—the old employer—for a longer period. The definition is fairly comprehensive. 
 The clause recognises that in some cases employers may provide an occupational pension scheme offering money purchase benefits to which they do not make any employer contribution over and above the contracting-out rebate. In such cases, it would be unfair to require the transferee employer to have to make an employer contribution to a scheme. There is a risk that some unscrupulous employers might deliberately remove employees' occupational pension rights prior to a transfer to make a business look more attractive to potential buyers. Therefore, subsection (5) determines that if such action has been taken by the old employer by reason of a transfer, and is proven, the right to protection from the transferee employer will be unaffected. 
 The amendment clarifies the drafting of the clause, which sets out the conditions that must apply before employees can benefit from pension protection on transfer of employment. 
 Amendment agreed to. 
 Clause 203, as amended, ordered to stand part of the Bill

Clause 204 - Form of protection

Kevin Brennan: I beg to move amendment No. 310, in
clause 204, page 129, line 8, leave out from 'scheme' to end of line 12 and insert 
 'is certified by the actuary to be broadly comparable to the occupational pension scheme referred to in section 203(1)(c)'.

James Cran: With this it will be convenient to discuss the following:
 Amendment No. 311, in 
clause 204, page 129, line 25, at end insert— 
 ' ''actuary'' means the actuary appointed by the trustees of the scheme referred to in section 203(1)(c) pursuant to section 47 of the Pensions Act 1995'.
 Amendment No. 312, in 
clause 204, page 129, line 36, at end insert 
 'but in the case of contributions payable by the employer shall not be less than the contributions paid by employers into the scheme referred to in section 203(1)(c) and in the case of contributions payable by members shall not be more than the contributions paid by members into the scheme referred to in section 203(1)(c).'.

Kevin Brennan: My hon. Friends will be aware that my amendments refer to the Transfer of Undertakings (Protection of Employment ) Regulations 1981, S.I. 1981, No. 1794, which I am thankful to say that someone shortened to the acronym TUPE, and which has become an important part of the discussions about what happens to workers when they are transferred to another employer.
 I welcome the protection that the Bill introduces. The purpose of my amendments is to probe my hon. Friends the Ministers as to why the Government are not going a little further. The amendments would provide full protection for the value of pension scheme benefits after a transfer rather than insist only on the level of pension provision outlined in clause 204. 
 For final salary schemes the test would be that the actuary of the old scheme would certify that the schemes of the new employer were of a quality comparable to the scheme of the previous employer. For money purchase schemes the requirement would be that the employer should pay no less and the employee no more than under the old company scheme. The Bill proposes a reference scheme standard for final salary schemes. In a way, that is the minimum standard for contracting out, and below the quality of the typical final salary pension scheme. The Bill also leaves the door open to the employee being asked to pay an unreasonably high contribution. 
 Having schemes of comparable quality is the formula applied in the public sector when there are transfers as part of Government policy. The debate about pensions has highlighted the fact that we have a two-tier system for pension schemes as between the public sector and the private sector. Those in the public sector are thoroughly protected and have security, and the promise of security, in retirement. That is a promise that we tend to make to everybody—or rather, we tend to say that that is the aim of pensions policy. We should therefore extend that protection as far as is practically possible—I know that the Minister may have some practical objections—to all workers, whether or not they are employed by the Government. 
 For money purchase schemes, the Bill requires an employer to provide a contribution that matches any employee contribution up to 6 per cent. There is some concern that that could lead to the employer paying less and the employee paying more after a transfer. I would be grateful to hear from the Minister why the Government have not gone that step further to provide protection greater than the welcome protection that is being introduced under the Bill.

Nigel Waterson: By speaking to these amendments, I might be able to obviate the need for a stand part debate. I will, of course, attempt to remain in order at all times.
 Representing Eastbourne, I know a fair bit about TUPE. Eastbourne was the place that furnished the cause célèbre involving the Eastbourne dustmen who were originally employed by the borough council and 10 transferred to a private provider. If I remember rightly, the case went all the way to the House of Lords, and the dustmen won. Hence Eastbourne can to a large extent be regarded as the birthplace of TUPE. The proposals go further than TUPE has ever gone, and extend the principles to private or occupational pensions. 
 I want to probe Ministers on a few points, not least those raised by the Library briefing, which is particularly good on this aspect. As I understand the position, when the transferor company, the original employer, has provided either a defined benefit or a defined contribution scheme, the new employers have to provide the following: an occupational DB scheme that satisfies the reference scheme test, or any alternative standard that may be prescribed—under regulations, I assume; an occupational DC scheme to which the employer makes a ''relevant contribution''; or an employer ''relevant contribution'' to a stakeholder pension scheme of which the employee is a member. The ''relevant contribution'' will be defined in regulations. Again, I am not holding my breath. I assume that the draft regulations will not be available for our debates. However, it has been suggested that the transferee will have to match the employee's contribution up to a maximum of 6 per cent., as set out in the explanatory notes. 
 As the Library briefing points out, 
''It is not clear whether acquiring employers will have to provide this level of contribution even if the transferor's contribution was lower.''
 I am sure that the Minister will want to deal with that. 
 The Library briefing also says: 
''As the consultation on extending TUPE . . . has progressed, so the degree of protection on offer from the Government has reduced. One of the four options under the 2001 consultation document was that 'if the transferor offered either a contracted-out salary related scheme . . . or a contracted-out money purchase scheme . . . then the transferee would be required to offer a scheme of the same type'.''
 There was no mention of the stakeholder option. 
 One of the other two options in the 2002 Green Paper was that when the old employer had offered a DB or a DC scheme, the new employer, too, would have to offer one of those schemes, with a comparable contribution. The second option was a group personal pension or a stakeholder pension. Again, the Library briefing states: 
''In the event, the Government is supporting the simplest option which imposes the lowest costs on transferee employers. Many consumer representatives argued strongly for a more generous approach during the consultation.''
 The views of the TUC and OPAS bear out that view. 
 It is also worth noting the slightly different point of view of the CBI, which is not at all happy with the 
 maximum figure of 6 per cent. It is opposed in principle to the extension of TUPE to cover occupational pensions, but it points out that if the Government are determined to do that, 
''it is important that the extension of TUPE to occupational pensions is accomplished in a way that is workable for business so that it does not undermine transfers by imposing excessive costs and is not used as a method to ratchet up levels of private sector pension provision. Finally it must be simple to understand and administer, avoiding any need for actuarial certification.''
 I would be grateful if the Minister dealt with that specific point. The CBI goes on to say: 
''the minimum for employer contribution should be set at the 3 per cent. level—not the 6 per cent''.

Malcolm Wicks: What is the hon. Gentleman's view?

Nigel Waterson: I have no settled view of the figures.

Malcolm Wicks: We have heard the Librarian's view.

Nigel Waterson: We have not heard the Librarian's view—we have heard differing views expressed about the percentages. If the major employers organisation in this country is unhappy with the proposals, the Minister has a case to answer on whether the Government took the trouble to consult it properly. I am passing on its concerns. Does he think that they are groundless? They clearly have not featured in the Government's conclusions. To repeat, the CBI thinks that 3 per cent., not 6 per cent., should be
''established under the stakeholder rules as giving exemption when made to a Group Personal Pension.''
 I will be fascinated to hear what the Government have to say about the CBI's position. 
 It is instructive to look again at the famous regulatory impact assessment. It comes up with the figure of about £5 million in any one year, and that is on the basis that between 145,000 and 175,000 employees will be affected by such transfers each year. That is an interesting figure, as it is rather higher than I would have expected. Of those, an estimated 40 per cent. will be eligible to join an occupational pension scheme. The regulatory impact assessment suggests that the costs reflect the costs of pension provision or contributions only in the first year after transfer, because the new protection is explicitly designed to protect only workers who would otherwise lose pension rights by reason of transfer. Continuing provision will be a matter for the new employer, and that is the basis for the calculation. It is of some interest that the RIA takes the view that a large number of employees will take advantage of the provisions when they are introduced.

Steve Webb: I echo the comments of the hon. Member for Cardiff, West in warmly welcoming the extension of TUPE to cover occupational pension provision. It is right and long overdue. I have a lot of sympathy with this group of amendments because they suggest that the pension rights that people acquire in a new firm should be strictly comparable with what they had before. That is in the spirit of what TUPE is supposed to be about.
 I have a technical question that I want to flag up now to give the Minister a chance to seek inspiration. Those rules apply on the first transfer of employer, but employees who are transferred are often transferred again. For example, if the bin contracts are taken over by a new contractor, the employee will be transferred from the first to the second employer. Will the same level of protection apply at each stage, or could it get diluted? I have a constituent who is a pension fund trustee, and she occasionally sends me difficult e-mails. One of the concerns that she has raised is that although the protection on the first transfer might look fine and dandy, when employees move on to the second employer the waters might be muddied. I want the Minister to put on the record how those situations will be treated. 
 I was interested in the comment of the hon. Member for Cardiff, West that the Bill is imposing a lower standard in the private sector than in the public sector. I would be interested to hear the Minister's response to that, because I would not have thought that we wanted to do that. 
 I have two questions about the 6 per cent. figure. Where has that figure come from? Is it based on an estimate of how much people need to save to avoid poverty in old age, or an average estimate of what current schemes offer? I do not agree with the CBI that the figure should be 3 per cent. However, at least that figure is in the existing regulations in connection with stakeholder schemes. 
 If the scheme that the worker starts in is non-contributory, the requirement for the next employer to match employee contributions up to 6 per cent. starts to become onerous for employees whose previous scheme did not require them to contribute anything, because the employer was putting all the money in. I accept that that is probably not common, but it is possible. In those circumstances, does the employee effectively lose a valuable pension right because the employer is now required only to match contributions, but the employee was not even making them in the first place?

Malcolm Wicks: I welcome the support of my hon. Friend the Member for Cardiff, West and the hon. Member for Northavon for the broad thrust of what we are trying to achieve. This is an important clause. It ensures for the first time that employees can benefit from a statutory minimum standard of pension protection following a business transfer, and it details the options available to the transferee employer to deliver this requirement.
 I had previously thought of Eastbourne in terms of the bracing air of Beachy Head, and my knowledge of history was deficient in that I did not know that it was the home of TUPE. Given that, I thought that the hon. Member for Eastbourne might be the champion of TUPE. We heard the Librarian's analysis, which was interesting, and the CBI analysis, but we did not hear at what level he thought the protection should be pitched; there may well be an opportunity for him to tell us that later. 
 Amendments Nos. 310, 311 and 312 relate to the form of pension provision, that the transferee 
 employer—that is a terrible term; I prefer ''the new employer''—must provide to transferring employees. They would still provide transferee employers with the option of providing a salary-related or money purchase occupational scheme, or a stakeholder scheme. However, if the transferee employer chooses to offer a salary-related occupational pension scheme, amendments Nos. 310 and 311would require the scheme offered by him or her to be broadly comparable to the one offered by the transferor employer. That addresses the argument of my hon. Friend the Member for Cardiff, West. Such comparability is to be certified by an actuary, and that would apply even where the transferor's scheme was a money purchase scheme. 
 Amendment No. 312 would specify the level of contributions to be paid if the transferee employer chose to set up an occupational defined contribution scheme or a stakeholder scheme for transferred employees. Contributions would be as follows: for the transferee employer, no less than those paid by the old employer, and for members, not to be required to contribute more than members of the old scheme. 
 I have been asked about consultation. We did consult on our pension proposals. Many responses to that extensive process, and to an earlier DTI consultation on TUPE, have set out the difficulties of comparing different types of pension scheme. Requiring actuaries to compare money purchase and salary-related occupational pension schemes would impose further problems. 
 In defined benefit schemes, the employer contribution rate depends on its funding position and is determined in relation to the entire membership, not particular individuals. For example, it could be higher in a scheme with more old members and pensioners, lower in a scheme with younger members. Where schemes are particularly well funded, employers may be able to reduce their contribution rates, so there is no necessary read-across from what an employer contributed to a DB scheme at any particular time to what a transferee employer should contribute to a DC or stakeholder scheme. 
 Therefore, we have opted in the clause to set a statutory minimum standard to apply to all transfers. If the transferee employer chooses to offer a salary-related occupational scheme, it must meet the reference scheme test, which is the statutory minimum requirement for contracted-out schemes. A scheme must meet the test to be allowed to contract out. The reference scheme test relates to a scheme that provides entitlement to a pension at 65, continuing for life at an annual rate of one 80th of average earnings of the last three years of service multiplied by the number of years' service. The scheme must also provide benefits to the widow or widower whether the earner dies before or after the normal pension age. 
 If the employer chooses to offer a money purchase scheme, the requirement is, as we have heard, for matched 6 per cent. contributions even where the transferor offered a defined contribution scheme with an employer contribution of less than 6 per cent. The hon. Member for Northavon asked why we chose 6 per cent. I do not pretend that there is an exact 
 science, but there is some empirical context to that figure. Research published by the Government Actuary and by our Department indicates that the average contribution to a defined contribution scheme by employers is between 5 and 6 per cent. 
 I do not have the answer on second transfers readily to hand. I hope that my hon. Friend the Member for Cardiff, West and other Committee members will accept my offer to write to them. I have not had a yes or no wave of enthusiasm. The answer does not occur to me at present. Although the point is important, I am afraid that I will have to write. I will certainly do so. 
 I respect where my hon. Friend the Member for Cardiff, West is coming from. The thrust of his policy proposals is that, although he welcomes what we are doing, he does not think that we are doing enough, and that the process should be absolutely managed. I think that we want to avoid an approach that could prevent mergers and acquisitions, or increase costs so much that employers would be encouraged to withdraw pension provision. A company in difficulty may often be saved by an acquisition. Pitching the pension liability at too generous a level could stop that happening, with debilitating consequences for the employment opportunities of the workers. 
 In that, as in other aspects of the Bill, we have sought to get the balance between protection and costs right. That is why in parts of the Bill—this may be one such part—we have been conscious of the costs being imposed. We do not want to go for such wonderful pension provision that it threatens employment, or the future of pension schemes. That is the balance that we are trying to strike. 
 I suppose the only substantial answer to the important question about the difference between TUPE in the public sector and TUPE in the private sector is that by definition, the state is the employer in the public sector. It can make judgments about such costs. The situation is altogether different in the private sector, even though the state regulates its arrangements. My hon. Friend may wish to continue this argument outside the Committee, but at least he acknowledges that the measure is a notable social advance for this important group of workers.

Kevin Brennan: It is a notable social advance, and we could debate at length the nature of the risks that workers, employers and shareholders should have to accept with pensions. My intention in tabling the amendment was to stress my strongly held view that it is essential that people have confidence in their pensions, and the risk to the worker be minimised. After all, the purpose of the pension is to provide security, and the governing party to which Labour Members belong was founded to provide security for workers.
 The Bill is a welcome step forward, and I shall not prolong the debate at this stage. I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Clause 204 ordered to stand part of the Bill.

James Cran: It would be helpful for me to know whether any of the Opposition parties want stand part debates on clauses 205 to 208.

Nigel Waterson: I would like to speak on clause 206.

James Cran: Fine. I will take the clauses separately.
 Clause 205 ordered to stand part of the Bill.

Clause 206 - Inalienability of occupational pension

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: I am sorry, Mr. Cran. I know that you had a rush of enthusiasm when you allowed me to speak on this clause. I have a fairly simple question.
 The Government started off with a great burst of energy by providing us with a fact sheet on the first part of the Bill, but fact sheets seem to have dried up—but of course, I am still not on the mailing list. There may be constant circulation of such information, but perhaps I do not see it because I am not included. 
 I do not understand the concept of ''inalienability''. I cannot even pronounce it, let alone understand it. Perhaps the Committee could be given a brief explanation of how the clause improves on the existing provision in the Pensions Act 1995.

Chris Pond: Let me explain the clause. It allows an occupational pension scheme to recover an accidental overpayment of pension to a member of the scheme. It can and does happen that a pension scheme makes a mistake in calculating a member's pension and pays them an incorrect amount. If the payment is an underpayment, the scheme is under an obligation to make good that payment.
 It has been the practice in the past that the trustees of the scheme would recover any overpayment simply by reducing future payments of pension to the member. However, recent legal opinions have cast doubt on those arrangements and have said that such recoveries may not be tenable because of the provisions of section 91 of the 1995 Act. 
 However, the policy is clear. If there has been an overpayment of pension, it is only right that the scheme should be able to recover it. This clause makes it clear that schemes can make such recoveries and, taken together with the existing safeguards, provides a central way for pension schemes to deal with overpayments. First, section 91(6) of the 1995 Act provides that the scheme must give the member a certificate showing the amount to be recovered and its effect on his or her benefits. Secondly, if there is any dispute, the action for cost recovery cannot be undertaken unless a court has made an order to that effect. 
 I do not know whether the Committee wishes to prolong our considerations, or whether I could provide the hon. Gentleman with a briefing note or letter to explain precisely what is meant by inalienability. The burden of the clause is as I have described it.

Nigel Waterson: I am grateful for that explanation.
 Question put and agreed to. 
 Clause 206 ordered to stand part of the Bill. 
 Clauses 207 and 208 ordered to stand part of the Bill.

Clause 209 - Debt due from the employer when assets insufficient

Chris Pond: I beg to move amendment No. 284, in
clause 209, page 134, line 37, leave out 'insolvency' and insert 'relevant'.

James Cran: With this it will be convenient to discuss Government amendments Nos. 285 to 292, 282 and 283.

Chris Pond: Amendments Nos. 284 to 292 would amend the clause, which would itself amend section 75 of the 1995 Act containing provisions on debts from employers when schemes wind up or their sponsoring employer experiences a relevant event. Clause 209 aligns those provisions with those on the pension protection fund and refers to events that are part of the processes relating to the PPF. If the Committee would like me to go through each of the amendments in turn I shall happily do so. However, I take it that the Committee would like to move on briskly.
 Amendment agreed to. 
 Amendments made: No. 285, in 
clause 209, page 135, leave out lines 2 to 6 and insert— 
 '(3) Subsection (2) applies only if— 
 (a) no relevant event has occurred in relation to the employer in the period beginning with the appointed day and ending with the commencement of the winding up of the scheme, or 
 (b) since the date of the last such relevant event but before the end of that period, a cessation event has occurred in relation to the scheme.'.
 No. 286, in 
clause 209, page 135, line 8, leave out 'insolvency' and insert 'relevant'.
 No. 287, in 
clause 209, page 135, line 20, leave out 'insolvency' and insert 'relevant'.
 No. 288, in 
clause 209, page 135, line 22, leave out 'insolvency' and insert 'relevant'.
 No. 289, in 
clause 209, page 135, leave out lines 24 to 29 and insert— 
 '(a) if the qualifying relevant event is within subsection (6B)(za)(i)— 
 (i) the occurrence, in relation to the scheme, of an event within paragraph (a) of subsection (6A) in circumstances where that event is the first event within that subsection to occur after the qualifying relevant event, or 
 (ii) the commencement of the winding up of the scheme before any event within subsection (6A) occurs; 
 (b) if the qualifying relevant event is within subsection (6B)(za)(ii)— 
 (i) the occurrence, in relation to the scheme, of an event within paragraph (a) of subsection (6AA) in circumstances where an event within paragraph (b) of that subsection had not occurred since the qualifying relevant event, or 
 (ii) the commencement of the winding up of the scheme before any event within subsection (6AA) occurs.'.
 No. 290, in 
clause 209, page 135, line 46, at end insert— 
 '(6AA) The events within this subsection are— 
 (a) the issuing of a notice under subsection (2) of section 102 of the Pensions Act 2004 confirming that a scheme rescue is not possible; 
 (b) the issuing of a notice under subsection (3) of that section confirming that a scheme rescue has occurred.'.
 No. 291, in 
clause 209, page 135, line 47, at end insert— 
 '(za) a relevant event occurs in relation to the employer in relation to an occupational pension scheme if and when— 
 (i) an insolvency event occurs in relation to the employer, or 
 (ii) the trustees or managers of the scheme make an application under subsection (1) of section 101 of the Pensions Act 2004 or receive a notice from the Board of the Pension Protection Fund under subsection (5)(a) of that section,'.
 No. 292, in 
clause 209, page 136, line 4, leave out paragraph (b) and insert— 
 '(b) a relevant event (''the current event'') in relation to the employer is a qualifying relevant event if it occurs on or after the appointed day and either— 
 (i) it is the first relevant event in relation to the employer to occur on or after that day, or 
 (ii) since the date of the last relevant event which occurred before the current event (but not before that day), a cessation event has occurred in relation to the scheme, 
 (ba) ''appointed day'' means the day appointed under section 98(2) of the Pensions Act 2004 (no pension protection under Chapter 3 of Part 2 of that Act if the scheme begins winding up before the day appointed by the Secretary of State), 
 (bb) ''cessation event'' means— 
 (i) in the case of a relevant event within paragraph (za)(i), an event within subsection (6A)(b), (c) or (d), and 
 (ii) in the case of a relevant event within paragraph (za)(ii), an event within subsection (6AA)(b), and'.—[Mr. Pond.]

Adam Price: I beg to move amendment No. 316, in
clause 209, page 136, line 14, at end insert— 
 '(4A) In subsection (8) leave out ''not''.'.
 This is not the most elegant amendment, and it is certainly not the longest that has been tabled so far. Nevertheless, it is important because it seeks to ensure that pension fund debts under the terms of the clause are preferential debts for the purposes of the Insolvency Act 2000. Any pension debt, in the case of an underfunded final salary pension scheme, is not treated as a preferential debt. The upshot of that is that the prospects of recovery are small, because the schemes come behind a long list of preferential debtors, particularly those with floating charges over the company's assets. Preferential debts have included the Inland Revenue and Customs and Excise, although I understand that under the Enterprise Act 2002 Crown debts no longer constitute preferential debts. Those with floating charges are at the core of preferential debts, although there is currently a list of employer debts. Some of the social security contributions may apply up to a limit of a year, and some of the employer contributions to the state pension scheme—and to a contracted-out scheme—
 may apply up to 12 months before the time of insolvency. 
 The pension fund deficit is, by and large, excluded from that list of preferential debts. In the case of Allied Steel and Wire, as the hon. Member for Cardiff, West will know, £57 million of the £82 million recovered for preferential debt by the receiver will go to the banks, mostly Lloyds TSB. Some £20 million will go to Gerling NCM, a supplier of scrap metal that remortgaged the company, and just £5 million will go to the workers. 
 That problem applies in other cases, too, such as that of HH Robertson. In that case, an asset stripper moved in, bought the company for a dollar, took the assets out and left a massive hole in the pension fund. The assertion was that if there had been protection under the Insolvency Act 1986, giving the pension fund preferential treatment, that action would not have proceeded in the same way. Under that Act, if, once the insolvency expenses and any secured claims have been dealt with, the total preferential debts are greater than the assets left, the assets are shared out equally among the preferential debt holders. That would be a means of preventing creditors from trying to get their cash out and foreclosing on their loans. That may well have been practice in the ASW case, too. 
 If banks realise that they are no longer at the front of the queue for the assets of the company that they push to insolvency, and realise that they will have to take a share along with the pension fund deficit, it may not be so attractive for them to consider sending that company into insolvency. 
 Much of what I have said relates to the current legal situation, and that will, of course, be changed by the Bill. However, there are two points of relevance to the provisions of the Bill. One relates to the period after the pension protection levy comes into force, and the other is the transitional period. Concerns have been raised that, after the creation of the PPF, some creditors will feel that they are in a better position to release their cash from companies, because they will view that prospect with greater equanimity knowing that there is a safety net in place. Creditors may act against companies in order to get their cash out, and there may be a spate of companies being pushed into insolvency so that people can take early advantage of the new provisions under the PPF. Clearly, changing the position as regards preferential debt would also make creditors think twice before initiating such a strategy. 
 Secondly, there is the interim or transitional period after enactment but before the PPF comes into force. I imagine that that issue is probably engaging Ministers, as they weigh up the issue of what we do about workers at ASW and other companies. Clearly, if there is a deal, and some form of compensation is offered, there is the question of what happens to companies that go into insolvency a week after those arrangements have been announced. There may be a similar rush by creditors to move companies into insolvency, so that they can get their cash out, knowing that some kind of compensation arrangement is available that will help in relation to 
 the pension fund deficits and help avoid any negative public relations for the creditors involved. I can understand why that may be a factor in the Government's deliberations. 
 Once again, changing the situation as regards preferential debt arrangements for pension fund deficits would provide at least some bar.

Kevin Brennan: On that point, does the hon. Gentleman acknowledge that that should not be a bar to the Government's doing anything with regard to compensation, as the argument would apply equally when the pension protection fund was introduced?

Adam Price: Yes, I certainly accept that and I would not want to provide the Government with any comfort in compensating the workers of ASW and other companies, as that is the Government's responsibility. There are several reasons why it would be prudent—to use the word of the day—to look again at preferential debt treatment of pension deficits. That was one issue on which the Government invited responses in the technical paper that accompanied the publication of the Green Paper.
 In an Adjournment debate in the Chamber called by the hon. Member for Sittingbourne and Sheppey (Mr. Wyatt), the then Minister for Pensions, who has now plummeted to the top as the chair of the Labour party—I am not very good on constituencies—

Kevin Brennan: Makerfield.

Adam Price: I am grateful to the hon. Gentleman. The right hon. Member for Makerfield (Mr. McCartney) responded to that debate, saying:
''Certain unpaid pension contributions may be pursued as a preferential debt in the event of insolvency of the employer. It seems to me that the issue is whether the contribution that employees have made—often over many years—to the success of their company and to the running of their pension fund, should enjoy a preferential status.''
 He went on to say: 
''I believe that the answer to that is self-evident, and I assure my hon. Friends that I will raise the matter with ministerial colleagues at the Department of Trade and Industry.''—[Official Report, 16 October 2002; Vol. 390, c. 440.]
 He said that the answer was self-evident; unfortunately he did not say which way he came down on the issue. Very canny; I can see why he was promoted—well, if it is a promotion. 
 In the Under-Secretary's response it would be interesting to hear what was the view of the consultees about the issue of preferential debt and what the Department of Trade and Industry said in response to the then Minister's comment.

Chris Pond: I understand the hon. Gentleman's concern, which is shared by other Members. It is because the Government take such concerns so seriously that moving pension schemes up the order of priority for payment was one of the options considered in the December 2002 Green Paper, as he has reminded the Committee. It was one of the biggest ever consultations on pensions, and we receieved
 about 800 responses from a wide range of groups and individuals.
 The hon. Gentleman asked what were the responses. There were various views among the respondents about the option. The trade unions were unanimously in favour, as were the majority of voluntary and consumer organisations and members of the public. There was a mixture of views among the other respondents. Among the seven employers who responded, most were in favour. The CBI said that it was 
''strongly opposed to moving pension schemes up the order of priority. This could have serious and unintended consequences''.
 It then said: 
''Employers with DB schemes will find it harder to obtain secured loans or see the cost of loans increase . . . it could hinder future overseas investment into the UK''.
 It ended: 
''Other unsecured creditors would lose out and find themselves penalised through no fault of their own.''
 With a difficult decision to make on the balance of those arguments, we decided that it was not sensible to move forward with the option for the reasons outlined in the CBI's response.

Steve Webb: The list of creditors includes the taxpayer—the Inland Revenue. Although I can accept that there are problems with prioritising the pension fund debt above banks, with its implications for the cost of borrowing, surely society might want to step in behind the members of an underfunded pension scheme. It would not affect the cost of capital or any of the issues raised in the passage that the hon. Gentleman just quoted.

Chris Pond: No, although the hon. Gentleman recognises that in 2002, as the hon. Member for East Carmarthen and Dinefwr (Adam Price) pointed out, Crown preference was abolished as part of the move away from preferential treatment. The reason is that in those circumstances it is unlikely that anyone will get very much at all. In addition, to push one group ahead of another can create unintended priorities. While we recognise how important it is that we do everything possible to protect the interests of scheme members, in those circumstances we are not convinced that this measure is the best way forward. I ask the hon. Member for East Carmarthen and Dinefwr to examine it in the context of all the other protections that exist in the Bill, and on that basis to agree that it is not an essential or a necessary way forward and to withdraw the amendment.

Adam Price: I am saddened, but not surprised, to see the Government siding with the CBI against the trade union movement and consumer organisations. However, I do not want to detain the Committee unduly. This is a fight that we must win another day, and I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 209, as amended, ordered to stand part of the Bill.

Clause 210 - Resolution of disputes

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: The fact sheet on the clause has not reached me, but I have two questions. First: how does this measure improve on the protections in section 50 of the 1995 Act? The second question is something that, if I had got round to it, I might have tabled an amendment on. However, as I did not, let me cast it as a suggestion, which Ministers might or might not wish to take up.
 We have debated the issue of trustees today and the question of recognised pensioner associations and their power to nominate member-nominated trustees for particular schemes. I envisaged some dispute about whether those people are who they claim to be, whether they are truly representative and on what basis they can be recognised. I wonder whether consideration could be given to whether one of the disputes that could be part of the resolution procedure could be the recognition of a pensioners' association in respect of a particular scheme.

Chris Pond: On the face of it, the proposal made by the hon. Gentleman seems reasonable. I hope that it is not an attempt to go back on the debate that we have had this afternoon. On the assumption that he is merely making a constructive proposal for something else that we should reflect on, we would be happy to do so. Given the assurance that we will examine that idea, perhaps we could move on and agree that the clause stand part of the Bill.
 Question put and agreed to. 
 Clause 210 ordered to stand part of the Bill. 
 Clause 211 ordered to stand part of the Bill.

Clause 212 - Annual increase in rate of certain

Nigel Waterson: I beg to move amendment No. 293, in
clause 212, page 140, line 37, at end insert— 
 '(5A) After subsection (6), insert— 
 ''(7) Regulations may provide that this section does not apply to schemes falling within a prescribed class or description, or applies to them with prescribed modifications''.'.

James Cran: With this it will be convenient to discuss New clause 7—Annual increase in rate of certain personal pensions—
'Sections 162 and 163 of the Pensions Act 1995 (c26) (annual increase in rate of certain personal pensions) shall cease to have effect.'.

Nigel Waterson: The amendment and the new clause are linked. They seek to deal with what I understand to be quite a technical, narrow, but nevertheless important issue. This will not be an occasion where there will be no other matters that I want to raise in the clause stand part debate.
 The amendment and the new clause relate to money purchase schemes, as opposed to defined benefit or final salary schemes. As I am informed, it is a question 
 of possibly unnecessary complexity—although one must accept that in this field there is much necessary complexity—and whether there is an unintended consequence in the drafting. In as brief a way as possible I will take hon. Members through the point. 
 It seems that someone retiring from a money purchase scheme after April 2005 and who has been a scheme member since before April 1997, might need to buy six different types of annuity with what is effectively one pot of money. As my briefing says with admirable understatement, that is confusing and complex for consumers to understand and there will be costs attached to that complexity. One way of overcoming the requirement to buy different types of annuity is to transfer the fund to a personal pension. Those with larger funds will often get access to the advice needed to make that transfer, but those with smaller funds will not and will therefore be the main sufferers from the proposals. As there is no objection to such transfers in principle, there cannot be an objection to the amendments. 
 The second problem with indexed annuities is that they generally do not represent good value for money compared with level annuities. The current version of indexation—limited price indexation as it is known in the trade—requires pensions built up from 1997 to be increased in line with inflation up to 5 per cent. That represents full inflation linking in the current market on short and long-term inflation expectations. In other words, an LPI annuity costs the same as one that provides full retail prices index protection. 
 The people briefing me have obligingly produced figures based on the average private money purchase annuity pot of £23,000. To receive the same total payments from an RPI annuity as from a level annuity, a 60-year-old male must live to the age of 94. Sadly, the average 60-year-old male in the UK lives only to the age of 79. One of the changes that the Bill introduces is a cap on LPI annuities at 2.5 per cent. rather than 5 per cent. That should reduce the break-even age to 90, but that is still 11 years longer than normal life expectancy. 
 There is also a sub-issue of whether the problem affects the public finances. With the growth in means-tested benefits, a reduction in real private pension incomes should result in an increase in state-funded top-ups for the group that we are discussing. However, it is an issue of complexity and we are trying to get to the bottom of the intentions behind the proposals. 
 I should explain that the issue applies in a different way from defined benefit or final salary schemes. In those cases, compulsory indexation is of real value to the employee as the initial benefit is fixed, unlike in a money purchase scheme. Although the different bases for indexation still make administration more complex, we are not suggesting that indexation is removed from defined benefit pension schemes. I hope that that is reasonably clear. It is a genuine attempt by those in the industry, particularly in DC schemes, to probe the exact intentions of the provision.

[Mr. Jim Cunningham in the Chair]

Malcolm Wicks: As we have heard, amendment No. 293 would insert a regulation-making power at the
 end of clause 212. It would allow regulations to provide that annual indexation increases under section 51 of the 1995 Act should not apply to schemes of a prescribed class or description, or should apply with prescribed modifications. Without further amendments to clause 212 the amendment is technically flawed, but I will concentrate on the argument behind it in a moment.
 The Opposition's proposal to introduce new clause 7 would remove the mandatory indexation of contracted-out rights in personal pension funds. It would apply to all scheme rights built up since 1997 that have not yet been used to buy an annuity by the time the changes come into force. 
 Clause 212 eases the limited price indexation requirement in occupational pension schemes by reducing the existing cap on an annual rate of increase from 5 per cent. to 2.5 per cent. for future benefits. For defined benefit occupational schemes, reducing the cap on mandatory indexation will balance the cost of the levy imposed by the pension protection fund, which we shall come to soon, while continuing to provide protection against the worst effects of inflation. 
 The Government accept that there are different arguments and legitimate concerns about the implications of changing the mandatory cap on limited price indexation for defined contribution schemes. First, in contrast with defined benefit rights, in DC schemes the cost of indexation falls on the member, not the scheme. Indexation affects the annuity purchased, not the size of the pot, so that the starting pension is lower than would otherwise have been the case. 
 Secondly, the schemes are not subject to the protection afforded by the pension protection fund, which is reserved for defined benefit schemes. Thirdly, the change proposed under the Bill would add administrative complexity and require people to purchase more separate annuities to meet the different requirements on each tranche of benefits. Those are fundamentally different issues from those affecting defined benefit schemes. 
 The Government are therefore prepared to consider such issues in light of responses to earlier consultations on the proposals and we shall bring forward further proposals in due course. I would welcome a wider debate about defined contribution schemes and, in particular, how we can promote a better informed understanding of the choices that individuals need to make about annuities. On that basis and given my assurance, I hope that hon. Members will agree to withdraw the amendment and not press new clause 7 to a Division.

[Mr. James Cran in the Chair]

Nigel Waterson: I am grateful to the Minister for that response and his acceptance that a serious issue must be tackled. Indeed, what he said might also shorten some of the stand part debate. However, my
 enthusiasm and gratitude for his response is somewhat tempered by the matter of when—and if—the Government will table amendments to the Bill or whether the provision will be dealt with differently. Clearly, in all sorts of ways there might be differences between DB and DC schemes, as the hon. Gentleman has acknowledged, and different approaches need to be taken in legislation. My narrow and selfish concern is whether such approaches will be taken in the Bill and, if so, when. On that basis, however, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Sally Keeble: I beg to move amendment No. 224, in
clause 212, page 141, line 2, leave out 'lesser' and insert 'greater'.
 The amendment links in with the different figures for the protection of pensions and future increases. It would increase the level of pensions that people will receive in later years. It is a probing amendment. I understand the Minister's point that we have to balance protection-related costs. However, under the clause, the balance is very much in terms of the costs rather than the protection of future increases for pensioners. 
 The amendment follows on from our discussions this morning about women pensioners and the need to tackle poverty among them. I draw attention to the consequences of a system that reinforces the poverty of women pensioners and which, in particular, takes away some of their financial independence. We also talked this morning about the changing circumstances of pensioners. There are probably more women working full-time and more who have equal pay and equal access to jobs. There is greater awareness of the need for financial independence. As was said this morning, more women are now taking out private and occupational pensions, and some of them are making better pension provision than men. 
 It is particularly ironic that, just as women are moving into occupational, private, personal and stakeholder pensions, the Bill limits the increases that they receive in future years. The amendment is very much tied up with the others that I have tabled. It would ensure that women received greater increases and that their incomes in retirement were protected. Limited price indexation affects occupational pension schemes and also elements of private and stakeholder schemes. I understand that that measure was introduced in 1995 by the Conservative Government and applies to rights that accrue post 1997. It limits pension increases to 5 per cent. or RPI, whichever is lower. The Bill proposes that the limit should be set at 2.5 per cent., which would, if my understanding is accurate, limit the future increases that people would get. 
 My amendment would replace that measure with increases linked to the RPI, or increases in average earnings. It is intended to find out the thinking about the level of increases that people get and why the Government have plumped for these figures without any indication that the 2.5 per cent. limit would apply to higher pensions, rather than across the range of earnings, and would hit older pensioners in particular. 
 The helpful Library note illustrates the differences between the 2.5 per cent. and the 5 per cent. limits in weekly income in retirement. For somebody who has been retired for 15 years that would be £10 a week, and if they had been retired for 20 years it would be £15. The impact on people would be much greater. It would not just be about the difference between those two limits; it would be a choice between 2.5 per cent. and whatever was the inflation rate. People would feel that impact. 
 The reason why that impact would particularly affect women, and why I tabled the amendment to change the balance of what people get, is that women live longer. The Library note says that on average women live for three years longer than men. However, with due respect to the Library, the figures are somewhat different. It would take a long time to look through all the relevant papers. However, the Budget papers from yesterday include a helpful graph illustrating the age and gender profile of the population, and showing that at the age of 80 there are twice as many women as men. The impact of what looks like a small change is quite substantial for women; it will not be felt now, but in about 20 years. 
 It seems that we have got the balance between the protection for pensioners and the costs to the pension fund slightly skewed, particularly since that will be in primary legislation and will therefore be harder to change. It puts a very low cap indeed on pension increases in the future. It is right that inflation is currently low, we have the symmetrical target and policies are in place to keep inflation low. However, to say that that will apply for 20 to 30 years—[Interruption.] Well, I am not sure that anyone has a crystal ball. Our party has been able to control inflation and provide the economic climate that we have now. However, in 20 to 30 years the difference in ages may be even greater than 18 years. Given the backlash that we experienced over the changes to index linking of the state pension and the impact that that had on the erosion of people's income—people who felt intensely bitter about that—I wonder whether there should be a more flexible mechanism to deal with future pension increases, bearing in mind that there is a big shift into different types of pension provision. For the first time, women are paying into personal, stakeholder and occupational pension schemes. It would be sad if women, having got a greater level of financial independence and the right to independent pension provision, found 20 or 30 years down the line that they were not receiving the sort of income in old age—particularly frail old age—that they thought they would, due to a small rule change now.

Nigel Waterson: I shall speak on the amendment, and therefore cut out one of the issues that would otherwise arise during the stand part debate. The hon. Lady makes some telling points. There will be some resentment that as a result of cutting the LPI, occupational pensions could lose value in years to come.
 Inflation will not necessarily remain at recent levels. We all remember the disastrous years of a previous Labour Government. We may become used to double-digit inflation; who can look that far ahead? We have 
 to look that far ahead because we are dealing with pension schemes. There is a real problem in the clause. It is informative that even in this supposedly low inflation environment, in December 2003 and January 2004, inflation was running at 2.8 per cent. and 2.6 per cent. respectively. Those figures are not vastly different from 2.5 per cent., but they are higher. 
 It would be particularly tough on pensioners if in one year, 10 years or 20 years, inflation were running in double digits again. If the public were foolish enough to re-elect a Labour Government after a sustained period of Conservative Government, we could return to the banana republic finances that produced such levels of inflation. None of us knows with any great certainty what will happen, but locking a reduction into the pensions increases will be seen as unfair by many people. 
 The good old regulatory impact assessment is instructive. I do not know on what basis the figure is used, but it makes an assumption of an average long-term inflation rate of 2.5 per cent., with a 1.5 per cent. fluctuation either way. It concludes that the cut in the LPI will reduce total pensioner income by just less than 2 per cent. Finally, it says: 
''In light of the additional funding costs that schemes will incur . . . it is estimated that around 75 per cent. of DB . . . schemes would take this option up—resulting in actual aggregate savings of approximately £370 million a year, if applied to all future accruals''.
 That is a not insubstantial amount, based on that assumption. I do not know how valid the assumption is. Economists seem quite capable of getting most predictions wrong. Perhaps the Minister will explain to me whether those who prepare the RIA make the assumptions up themselves—or is a handle supplied to them by the Department?

Vera Baird: I shall be brief. I support my hon. Friend the Member for Northampton, North (Ms Keeble). I have added my name to the amendment for the reasons that she set out, and in particular because of the emphatically clear point that she made about the differential impact that the provisions are likely to have on women, who live longer than men. I have no further arguments to add to those she has made, but I raise two queries, which are essentially encapsulated in one.
 As I understand it, the provision is not retrospective. I am not saying that it would ever be likely to take away any increases above 2.5 per cent. that had already been added on. Currently accrued pension rights will continue to increase on an annual basis at whatever is the lowest of RPI and 5 per cent. If RPI is above 2.5 per cent., that will mean that they will increase at a rate that is more than the rate that applies to pension rights accrued after the day that the provision comes into force. If that is right, that means that, in many situations, there will be two pots, increasing at different rates. I want to be sure that I have understood that properly. 
 At a number of points in the Bill, as other members of the Committee have pointed out, the Government have given themselves the power to make regulations in order to change the terms of a provision in the Bill. 
 Is this not an ideal situation for including just such a clause? Members in all parts of the Committee would be likely to welcome that. It would not commit the Government to changing their view, but would leave them with a reserve power should inflation start to increase at a more rapid rate, and would enable them to ensure that there is not the injustice that we now fear.

Steve Webb: The amendment goes to the heart of the clause. It specifies what the level of inflation protection should be. The motivation behind the amendment is absolutely right. We know that among the pensioner population the poorest tend to be women and the most elderly, and the people who lose out most through inadequate inflation protection are precisely the most elderly because pensions erode over a long period. I am absolutely with the spirit of the amendment. However, if I understand the letter of it, it would mean that protection would be whichever was greater of 2.5 per cent. and actual inflation.

Sally Keeble: No.

Steve Webb: Well, my understanding is that the clause as it stands states that protection shall be the lesser of—

Sally Keeble: The amendment substitutes ''greater'' for ''lesser''. The full series of proposals was about taking out the 2.5 per cent. and simply linking increases to RPI or average earnings.

Steve Webb: All I would say is that amendment No. 224, which we are debating in isolation, would appear to refer to any inflation level. That would be an unacceptable risk to schemes, which is why I would have trouble supporting it. However, I absolutely agree with what the amendment is driving at.
 The key point is that the Government have said that on one hand they will put a new burden on company schemes in relation to the pension protection fund, but on the other they will raise the burden from schemes in relation to indexation, which is what we are dealing with at the moment. The idea is that those things will balance each other out, or make life a bit easier for company schemes. However, that depends on how much benefit the provision to relax limited price indexation will be to schemes. I am sure that the Minister would accept that many schemes have scheme rules that require indexation protection that is better than 2.5 per cent. Under the scheme rules, those schemes will not be able to take advantage of the relaxation of price indexation. Will the Minister reassure us that the estimated saving to schemes—I think it was £370 million—takes account of the details of scheme rules and is based on an analysis of those rules and the extent to which schemes will benefit? If some scheme rules do not allow the scheme to go below inflation—let us say it was 4 per cent. or thereabouts—the estimate of the reduced burden on schemes would be inaccurate. I hope that the Minister can clarify that. 
 Even the regulatory impact assessment allows for the fact that inflation, even when it averages 2.5 per cent., can go either side of that: down to 1 per cent. or 
 up to 4 per cent. That fact that it is 1 per cent. in a given year and 4 per cent. in another does not mean that the effect is offset, because this is not an average process. Once someone has had a bad year, they have lost that increase for ever. If inflation is 1 per cent. one year, people get their 1 per cent.; they do not get 2.5 per cent. If it is 4 per cent. the next year, people lose 1.5 per cent. of their pension, in real terms, for ever. Although on average inflation might be 2.5 per cent., even in the fairly static sort of world that we live in there will be fluctuations, and the bad years are never recovered by the good years, so that people's real living standards will decline year after year. 
 My only other observation is that the regulatory impact assessment tries to say, ''Well, it's only a couple of per cent. What's that among friends?''—that is not quite the language of the regulatory impact assessment, but that is the implication. However, 2 per cent. of income over retirement is £7,000. The regulatory impact assessment puts ''£7'', and at the top it states that the figures are in thousands. That is £7,000 of retirement income. I accept that over the course of a retirement, hundreds of thousands of pounds are involved. However, this would still cost the typical pensioner £7,000. 
 The other question is whether the regulatory impact assessment understates the impact of the change to indexation because it takes as its average the average of all retired occupational pensioners, whereas the people that it will affect most are just coming into retirement. I think that I am right in saying that the £70 is an average over zeros. I think that I am right in saying that the £70 in the regulatory impact assessment is the average for the entire retired population. 
 However, the typical figure for the occupational pension of someone newly retiring would be much higher: the impact would not be £7,000, but quite a bit more. Even if the average does not include the zeros, it must be the case that the figure will be much lower if all retired people on occupational pensions are taken into account, rather than the people coming into the system. As the hon. and learned Member for Redcar (Vera Baird) said, the people coming into the system will bear the brunt of the proposals. 
 Although I have some technical concerns about amendment No. 224, it raises grave concerns and I have great sympathy for the motivation behind it.

Malcolm Wicks: This has been a useful debate about a complex question and a fundamentally important issue. As we have heard, the amendment tabled by my hon. Friend the Member for Northampton, North would affect the indexation of defined benefit and defined contribution occupational pension schemes. She will have heard what I said earlier about our thinking on defined contribution pension schemes.
 The amendment would remove the new indexation cap of 2.5 per cent. that we propose to introduce for the future. Instead, it would set a minimum indexation rate of 2.5 per cent., capped at 5 per cent. It says in my notes that the amendment is technically flawed; I can hardly believe that. [Interruption.] 
 Let me deal with the substance of the amendment. Clause 212 would ease the limited price indexation requirement in occupational pension schemes by reducing the cap from 5 per cent. to 2.5 per cent. for benefits built up on or after the date at which the change comes into force. Of course, schemes would be able to retain a 5 per cent. indexation rate if that were wished; some schemes intend to do that. 
 My hon. Friend suggests a move in the opposite direction to that of our proposals. I will try to explain why in our judgment that would not be sensible. Proposals to reduce the indexation cap will balance the cost of the levy imposed by the pension protection fund. 
 I will go into some detail about this issue. I am not trying to be patronising; I found some of this difficult to understand. Let me explain my understanding of the issue to Committee members. When trustees are planning how much money they need to hold to meet their schemes' future pension payments, their actuary needs to make assumptions about factors such as future salary growth, investment returns and inflation. Those assumptions feed into the actuary's calculations of the contributions needed in the future. For example, the higher the assumption made about future investment returns, the less money would need to be held now, because the money would grow faster in the future. In making an assumption about future inflation, the actuary will build into the calculations an allowance for the fact that year-by-year inflation in future will not be exactly 2.5 per cent. In some years it will be more, in other years less. 
 At the moment, in the years in which it is assumed that inflation will be more than 2.5 per cent., the scheme would have to pay pension increases higher than that, subject to the cap of 5 per cent. Once the reduction in the cap from 5 per cent. to 2.5 per cent. is introduced for the future build-up of pensions, the scheme would only have to pay an increase of 2.5 per cent. in those years. So after the reduction in the cap is introduced, the actuary's calculations would show that lower contributions were needed to meet the cost of pensions. 
 Therefore, our concern about the costs of accepting the amendment is that we estimate that the amendment would achieve the opposite of what we are trying to do. Depending on inflation, the application of the amendment could result in annual costs of around £900 million for defined benefit schemes, for the reasons that I have tried to specify. I return to the point that I made earlier. In all our proposals, we are seeking to balance our objective of bringing security back into social security in old age—hence the pension protection fund—with realism about the costs that are incurred by companies and by schemes. The actuarial reasons that I have specified make it difficult to accept the amendment. 
 We need to be realistic about the world in which we live when it comes to final salary schemes. Although some commentators exaggerate the trends, we know of companies that are withdrawing, either completely or for new members, from such schemes. It would be absurd for any of us to pontificate about the desirability of levels of pensions and guarantees, if it 
 were to drive some companies and schemes from final salary schemes to other schemes that might be less advantageous. That is my concern about an amendment that, otherwise, seems perfectly reasonable and, indeed, just. 
 Limited price indexation requires all occupational pensions built up from 6 April 1997 to be increased by the RPI index capped at 5 per cent. When that was introduced, it was intended only to provide a degree of protection against inflation. However, our success in controlling prices over the years means that the 5 per cent. cap has effectively become full protection. It imposes large and, on the whole, unnecessary liabilities on schemes in respect of their forward funding requirements, given the need to plan for contingencies. 
 Defined benefit occupational schemes already find the 5 per cent. cap a significant cost even during periods of low inflation. The amendment would result in increased costs for schemes, which would have to pay indexation of 2.5 per cent. even where price growth was below that. They would still have to plan against possible indexation rates of 5 per cent. That would mean higher costs for schemes and could have a detrimental effect on existing defined benefit schemes. It could lead to some schemes closing down. 
 In defined contribution occupational schemes, the cost of mandatory indexation is borne by the pensioner in the form of an index-linked and, therefore, initially more expensive annuity. I will not say more about that, given what I said about our thinking through some of the arguments presented by the hon. Member for Northavon. On that, and touching on the issue raised about women making more choices about pension schemes, I say that our earlier discussions about defined contribution schemes have a marked bearing on this issue. To answer the hon. Gentleman's earlier point, our intention is, during the Bill, to bring amendments forward on the points raised. We need to take advice before saying when such amendments will be tabled. 
 My hon. Friend the Member for Northampton, North said that our proposals would be bad for women. It is true that women in defined benefit occupational schemes will see a slightly higher reduction in their overall retirement income than will men. However, it is important to remember that the change will balance the cost of the pension protection fund to schemes. That will give all scheme members, including women, much greater protection of their pension rights and will encourage wider membership of pension schemes. I believe that, if asked to make an informed judgment about indexation versus security should their company crash, many women, and men too, would opt for security. 
 On the point about women living longer than men, and how that might adversely affect women when it comes to indexation, I counter by saying that the pension protection fund will, on average, protect women for longer than it will protect men, because of life expectancy. So there is a swing and there is a roundabout on that one. It is a complex matter. Many of the cost issues are not straightforward; they are about the long-term funding of schemes, and are technical but important actuarial points. 
 Notwithstanding those difficulties, I hope that my hon. Friend the Member for Northampton, North will consider withdrawing the amendment.

Sally Keeble: I apologise for the inelegance of the amendment. I might have drafted it differently if I were a draftsperson and if I had realised that only a bit of it might be selected for debate. However, it has been helpful to talk through some of the issues.
 I think that my hon. Friend makes a rash assumption if he thinks that people would choose a levy for a fund the benefits of which they do not yet know over what they understand is proper inflation proofing of their pension. People have a big awareness now of what happens if their pensions are not uprated each year. 
 What happens with women is very striking. When I first became an MP in 1997, I held quite a few pensioners' surgeries. It must be borne in mind that people have paid for private pensions for a long time, and they have had occupational pensions. Into the surgery came many desperately poor elderly women whose savings and state pensions had eroded in value. Their real problem was that they were widows aged over 80 and their pensions had not kept track with the cost of living. What happens with indexation is an important issue; people are acutely conscious of it. As the hon. Member for Eastbourne said, this is not about a difference between only 2.5 per cent. and 5 per cent. but between 2.5 per cent. and 7 per cent. or more. 
 If any more thought were given to being a bit more flexible about this—perhaps in the way that my hon. Friend the Minister suggested—that would be helpful. However, this is a technically flawed proposal, so I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Question proposed, That the clause stand part of the Bill.

Nigel Waterson: In light of a couple of things that the Minister said, my remarks can be shorter than they otherwise would have been. I want to commend to the Committee the ''Action Plan on Defined Contribution Pensions'' of the Association of British Insurers. It makes several very sensible proposals, some of which I hope that the Government will take on board. As has been said, it remarks that
''the process of converting a pension fund into an annuity is far more complicated than it needs to be.''
 It also states: 
''Even though the PPF is not designed to protect DC schemes, this change will force many people to buy two further annuities with their DC pension.''
 There is clearly an element of unintended consequences there, with all the ''confusion and additional costs.'' 
 The ABI also offers a variety of proposals, one of which is 
''that compulsory indexation of occupational DC schemes and protected rights pensions should be abolished at the earliest opportunity''
 although it also accepts that indexation should remain compulsory for DB schemes because they do not depend on the size of the individual's pension pot. The Minister touched on that. 
 I am pleased that we shall hear more about this, but we are at the end of the second week of the Committee stage and it is not unreasonable for us to be a little more pressing than we have been with the Government. When will we see the amendments? They are likely to change the shape of the Bill considerably, but I cannot comment any further until I see them.

Steve Webb: I will not detain the Committee unduly. If the Government cannot produce the amendments, it would be helpful if we were given a steer as to their direction of thinking with regard to defined contribution schemes and indexation. I have only started to appreciate that whereas the indexation burden on a DB scheme falls on the scheme and is, if not a free lunch, good news for the recipient, for a DC scheme member it might be bad news. That is an important distinction, so it would be helpful to have a steer from the Minister about the Government's provisions on DC schemes.
 I have looked again at the regulatory impact assessment estimate of the effect of the clause on a typical pensioner and, unless I misunderstand, the £70 seems to be an average over the zeros. I believe that it is a serious underestimate of how much a typical pensioner with a typical occupational pension will lose. If it is £7,000 based on £70 a week and that £70 is averaged over many people who do not have occupational pensions, the typical occupational pensioner could lose far more than £7,000. The scale of the consequences of the clause could be much greater than the regulatory impact assessment implies. 
 I accept the Minister's point about there being a balance, but he is saying that if we do not lower the requirement or impose another burden or fail to remove a burden, we might force more schemes to close, but inflation indexation might be required because that would be less of a burden and they would be even less likely to close. Clearly, there is a spectrum and the requirement seems to go up to 5 per cent. when inflation averages 2.5 per cent. That is not so onerous and the saving from cutting it would not be as great as the Minister suggests, but the reassurance and protection that it affords, particularly to women, might be, at not that great a cost, worth keeping in the Bill.

Malcolm Wicks: We have had a useful mini-debate. In response to the last points made by the hon. Member for Northavon, which go back to an earlier debate, I urge hon. Members to consider seriously the issues surrounding costs and how we balance them against security. I do not want to exaggerate—I leave that to financial pundits—but there is clearly a long-term trend away from final salary schemes to other schemes. We can debate the pros and cons of that, but a correlated concern is the way in which employers' contributions to many defined contribution schemes average out at about half the contribution to final salary schemes. The issues are serious and when boards might be considering the costs and the long-
 term future of final salary schemes it would be absurd if Parliament started to make those schemes so generous, well indexed and protective in respect of TUPE arrangements in the private sector that we encouraged more boards of directors to make the wrong decisions. If we made those mistakes, we would seriously over-egg the pension pudding. The issues are fundamental.
 I must not be churlish, but the hon. Member for Eastbourne raised a serious issue about defined contribution schemes and urged us to think again. We were already thinking again about the issues, but that is part of scrutinising legislation. Having reflected, I made my points, but, having done that, I am not going to pull the specific amendment out of my top pocket.

Nigel Waterson: I will not go into the Minister's tailoring, but he cannot have it both ways. He is a member of the Government with the massive resources of his Department and the benefit of representations from organisations such as the ABI. The problems are apparent to anyone with the slightest knowledge of the matter and he cannot bluster himself out of them. Where are the amendments, when will we see them and does he expect them to be debated in the Committee?

Malcolm Wicks: I have given a clear commitment to think again and to bring forward proposals during consideration of the Bill. I hoped that the hon. Gentleman would be grateful for that, given the way in which he introduced the amendment.
 I hoped that we would have a well informed debate about the issues concerning defined contribution schemes and annuities, some of which touch on gender. Were people to have more choice—broadly where we are coming from—the choice to have as much annuity as possible in the first year and not to index it would be tempting. However, informed choice would suggest that people think through the consequences for the future. Similarly, when someone is married with an annuity, or is about to take one out, another choice they have is whether to protect the annuity for the survivor. They are very difficult issues, and I suspect that men in particular may not be taking out an annuity that has a survivor's element. 
 There are some important issues with gender, and we should not rush in one direction without thinking through the importance of enabling people to make proper decisions about annuities. That includes the option now available to take the annuity from a company other than one's existing company pension scheme. There are difficult issues to consider before we immediately grasp what may seem to be the right way ahead. 
 We will return to the matter, and when the hon. Member for Eastbourne takes his walk across the beach this weekend, he will know that we need to be patient. 
 Question put and agreed to. 
 Clause 212 ordered to stand part of the Bill. 
 Clauses 213 and 214 ordered to stand part of the Bill.

Clause 215 - Exemption from statutary revaluation requirement

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: I want to raise a narrow but important point. It is not all my own work, but it is about the equalisation of GMPs. I am reliably informed that the general view of the European law requirement is that the total benefit for men and women for service from 17 May 1990 should be equal, rather than that each individual component of the benefit should be equal. The GMP legislation causes a problem by requiring schemes to treat a member's GMP differently from any additional benefits to which they may be entitled.
 Again, if I had received the information in time, I would have tabled an amendment to clarify what the clause seeks to achieve. An amendment would have allowed schemes to elect to revalue the whole of a member's benefit for service from May 1990 in a consistent way. The revalued benefit would have had to be no less than the statutory GMP, which may be different for men and women. However, the anti-franking requirements would not apply as they effectively force schemes to provide different benefits for men and women. 
 Members of the Association of Pension Lawyers legislative and parliamentary sub-committee have told me that they cannot work out what the clause intends to achieve. That view also extends to section 84 of the Pension Schemes Act 1993. People who know a lot more than I do about such matters want clarification about the purpose of the clause. It seems to be related to anti-franking, but no one seems quite sure.

Malcolm Wicks: It would clearly be helpful if I explain, albeit briefly, the purpose of the clause. It reinstates a provision that was originally in the Pension Schemes Act 1993, but which was repealed as an unforeseen consequence of the Pensions Act 1995. Occupational pension schemes are required to revalue the accrued rights of members who leave before normal pension age, thus protecting the value of pension rights left in the scheme. The way in which they must be revalued will normally depend on whether the benefits are salary-related, linked solely to a period of service or on a money purchase basis.
 Legislation sets out different ways of revaluing pensions. Until April 1997—an important period of our history—one method saw the scheme maintain the value of the whole pension by reference to the rise in the general level of prices. That required the approval of the occupational pensions board, which gave it on a general rather than scheme-specific basis. A result was that legislation that enabled schemes to use the RPI was inadvertently removed when the functions of the occupational pensions board were brought to an end by the 1995 Act. The clause therefore amends the re-evaluation requirements in section 84 of the Pension Schemes Act 1993. It enables schemes to continue to satisfy the statutory revaluation requirements by revaluing the total pension or other benefits fully in line with the RPI. 
 I am advised that the clause has nothing to do with issues of group equalisation of GMPs. They are included in any re-evaluation of deferred pensions. I am sure that what I have said is absolutely crystal clear. 
Mr. Waterson rose—

Malcolm Wicks: I will give way, but I was about to say that, if that is not crystal clear, I will of course write to the hon. Gentleman.

Nigel Waterson: I just want to be clear that the Minister is using the same definition of GMP as the rest of us are. Could he remind the Committee what GMP stands for?

Malcolm Wicks: Guaranteed minimum pension.
 Question put and agreed to. 
 Clause 215 ordered to stand part of the Bill. 
 Clauses 216 and 217 ordered to stand part of the Bill.

Clause 218 - Restrictions on commutation and age at which benefits may be received

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: I shall be brief, because I know that hon. Members' constituencies are beckoning.
 The clause deals with removing age and commutation limits, and deals with them in great detail, although I shall not. This is a useful moment to draw the Committee's attention to the considerable disappointment in the pensions industry about the fact that the Bill does not contain provisions permitting schemes to convert the famous GMPs into scheme benefits on the basis of actuarial equivalents. Nor does it seek to amend section 67 of the 1995 Act to allow retrospective modifications to scheme rules, or remove the requirement to obtain member consent for the commutation of equivalent pension benefits. 
 At least some of those issues, which are clearly important to people, were flagged up as possible subjects of additional amendments to the Bill. Will the Under-Secretary confirm that and tell us, if he can, where those amendments are in the pipeline?

Chris Pond: Given the lateness of the hour, and given that the hon. Gentleman has raised a specific question, I propose to write to him in response, saying where we are in that process.

Nigel Waterson: Does the Under-Secretary not know?
 Question put and agreed to. 
 Clause 218 ordered to stand part of the Bill. 
 Clause 219 ordered to stand part of the Bill. 
 Further consideration adjourned.—[Margaret Moran.] 
 Adjourned accordingly at nineteen minutes past Five o'clock till Tuesday 23 March at half-past Nine o'clock.